Millennials have destroyed the idea of starter homes, and they're splurging on million-dollar places instead

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It's a seller's market.

• Zillow's CEO, Spencer Rascoff, says millennials are interested in buying homes, but they're waiting longer to do so.
• Millennials aren't buying "starter homes" - they're typically spending more on their first homes.
• This is largely a result of the limited housing supply, and especially limited inventory at the middle and low end of the market.

Contrary to popular belief, millennials are in fact interested in purchasing homes. They're just waiting longer to buy.

According to a September 2017 report from real-estate website and app Zillow, millennials - i.e. people between ages 18 and 34 - are the largest group of home buyers in the US. (The median age of a home buyer is 36.)

Spencer Rascoff, Zillow's CEO, has some insight into why millennials are delaying their first home purchases. On an episode of Business Insider's podcast, "Success! How I Did It," Rascoff broke it down for Business Insider US editor-in-chief Alyson Shontell:

"The whole real estate industry now is characterized by extreme scarcity and inventory. There are about - and I think it's 15 or so percent fewer homes for sale today than a year ago." (Zillow puts the annual change in US for-sale inventory at -12%.)

"And so it's a seller's market whether you are a millennial or not a millennial. … And the root of this problem, the root of the inventory problem, is home builders really only build high-end houses now. It's very difficult for a builder to get it to pencil to build a 2,500-square-foot, 2,000-square-foot, 1,500-square-foot starter home because they can just make so much more money building a 6,000-square-foot-plus home."

As a result, Rascoff said, home prices shoot up, leaving minimal inventory at the middle and low end of the housing market.

Listen to the full episode here, or listen later with the buttons below:

Rascoff explained how this limited supply affects millennial home-buying patterns:

"People are, as a result of limited starter home inventory, they're renting longer. And when they buy their first home, they're buying a much nicer home than a prior generation.

"I mean, many people are basically skipping starter homes; they're renting until their 30s and that first house they buy is a million dollars and they just are not even buying the $200, $300, $400,000 home, which is a total mind shift as compared with previous generations. So they're still buying homes, they're just buying them later and buying them bigger."

Rascoff pointed out some other distinguishing features of millennials' home-buying experience.

For example, many millennials borrow their down payment from friends and family. According to a 2016 Zillow report, 25% of first-time buyers use gifted funds as a down payment.

And the majority simultaneously look at homes to buy and rent because they know they might not find a place to buy. As Jeremy Waksman, CMO of Zillow Group, told Business Insider's Madeline Stone, "We see nearly half of first-time homebuyers consider renting as well."

Other factors could help explain why millennials are putting off buying their first homes.

As Business Insider's Akin Oyedele reported, Census Bureau data shows that fewer 25- to 34-year olds are living with a spouse or a partner. That suggests milestones like marriage, which often precipitates buying a home, are happening later.

What's more, Oyedele reported, student debt has hit record levels, making it harder to take out a mortgage.