The Elusive Millennials Begin to Enter the Housing Market
Millennials have been slow to participate in the housing market. Historically, they have preferred to rent rather than own as a result of various factors. This has helped limit the sustained rally in home prices. However, recent data has shown that millennials are beginning to purchase homes in numbers, and the trend is starting to pick up some steam. Proof of this trend is found in several different recently released numbers, including an earnings report from a major homebuilder.
Those who are looking for trends in the housing market can find clues as to the overall state of the industry can find them in the earnings reports of major homebuilders. Toll Brothers, one of the largest builders in the country, reported its quarterly earnings recently. The company's CEO said on the earnings call that more than 20% of its home closings had a buyer that was under 35 years of age. Other companies have also reported an increase in home purchases by millennials.
This is reflective of changing attitudes about home buying among millennials. Now, many millennials believe that buying a home is a sound investment. Now, the younger generation views home buying even more positively than do Gen Xers and Baby Boomers.
Why Millennials Have Been Slow to Buy Homes
Previously, millennials had sat out the housing rally. Many people in the generation are saddled with student loan debt and needed to rent. In other words, millennials want to buy homes but their personal financial situations have kept them from the market. Many millennials were negatively impacted by the Great Recession which hit at its hardest right as many were entering the job market. Thus, some millennials got a delayed start of saving and financial planning. As you can see, there are many headwinds facing the millennial housing market.
Others wanted the flexibility to be able to move to a different residence. Finally, many millennials wanted to live in urban areas that were more attractive to renters than for home buyers. Now, as millennials get older and start families, some are finally moving away from the urban centers and out to the suburbs. Those who prefer to remain in the cities find themselves largely priced out of homeownership.
The Tides Slowly Turn in Favor of Millennials
However, the strong economy has now lifted up enough millennials where they are now able to put their wishes to buy homes into practice. The labor market has shown sustained strength and wages have continued a steady rise.
Still, there is much room for the millennial homeownership rate to grow. The gap between the rate of ownership for homeowners under 35 and between the ages of 35 to 44 is considerable. Less than 40 percent of those under the age of 35 own their homes. At the end of 2018, the rate of homeownership among those under the age of 35 was roughly 36 percent. However, the evidence is mounting that the rate is on the increase in 2019.
As time passes, memories of the housing crisis are fading. Buyers do not remember underwater homes and foreclosures as a decade has passed since the end of the Great Recession. In addition, the brisk economy has freed up credit and lenders are taking more risks to lend to younger borrowers. In addition, millennials are beginning to make a dent in their student loan obligations.
Progress Is Made, But More Needs to Happen
However, the anecdotal evidence from some of the major housing markets shows how far there still is to go for millennials to fully join the housing market. Buyers find themselves priced out in major cities such as San Francisco, New York, and Miami. The markets where millennials are beginning to buy are those with somewhat cheaper housing stock.
Still, surveys show that millennials maintain their dream of buying their home even if they are currently not able to buy. Nonetheless, many expect to be permanent renters due to the combination of their own financial situations and high housing prices. However, recent homebuilder earnings reports show that this situation may slowly be changing. Stated simply for millennials, the desire to buy a home is there, but many lack the means to do so. As they gain the means, millennials are expected to pour into the housing market. This will give the recent multi-year rally additional legs to keep going well into the next decade.