Millennials Are Buying Homes… Finally

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Millennials have been the most populous generation since 2015 but their presence in the housing market hasn’t reflected this. Millennials inability to purchase a home is largely due to a combination of large amounts of student debt, low wages, high rents and a low inventory of affordable homes.

Slow supply growth is leading to strong price appreciation causing homes to be unaffordable for millennials and first-time buyers. And, the supply that is there of starter homes is often purchased by a growing number of single-family landlords according to a recent analysis by Fannie Mae economists.

In the US homes values rose 6.9% in January year over year, which is faster than income growth. Millennials have been forced to remain renters, during a time when rents have been rising rapidly in desirable markets. In high tech areas like Seattle and Sacramento rates are appreciating at a rate of 9.1% and 6.3%, respectively.

However, experts anticipate this trend to begin to reverse as the leading edge of the millennial generation starts to hit their mid-thirties. More than half of millennial buyers have at least one child according to the 2017 Home Buyer and Seller Generational report released by the National Association of realtors. Children are known to be the primary driver of homeownership. This could be a primary reason for the lack of home ownership by the millennial generation thus far. Today the average age of a first-time mother is 26.3 years. In 1970 (before the millennial generation) that age was approximately 21.8. The increase in age happened across all states and all racial and ethnic categories to some degree or another. The increase in a number of millennials with children is also reflected in the fact that only 15% are searching for homes in urban areas. They are opting for the more “family friendly” suburbs.

In the years following the global financial crisis, it was hard to qualify for mortgages. Combined with student loans, mortgages quickly become unaffordable for millennials. Now they are paying student loans down while mortgages are relatively more affordable.

Zillow estimates that half of all home buyers are under the age of 36. First-timers have always made up a large share of home purchases, and their median age has hovered around 33 so it makes sense that millennials should now start driving the housing market.

Millennials made their presence felt in the housing market later than expected but now they are making up for lost time. As a group, they have skipped past traditional starter homes to homes that are about as big and expensive as those purchased by older generations.

 

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2 thoughts on “Millennials Are Buying Homes… Finally

  1. nbharp18

    Mike, enjoyed your analysis of the housing market here. I think its quite accurate to say that millennial generation has been underrepresented in the housing market these past few years because of this disparity between wage growth and price levels rising in the market. What was really surprising to me was that this generation is starting to forego “starter” homes and move into homes resembling those the older generations are buying. Maybe this is suggesting that the problem isn’t wage growth but that millennials are choosing to rent and save their money in return for a bigger home only a little later in life?

    Reply
  2. laurenlyman4

    I find it interesting how you make the comment that children drive the reason to buy a home, which I completely agree with, yet the marriage rates have been decreasing with generation leaving the Millennials with a marriage rate below 50%. Some of that has to do with the fact people do not feel the need to make their love a legal matter while others have decided spending a life with someone is not their cup of tea. I wonder if the marriage rates continue to decrease if it will affect the housing market.

    Reply

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