- Millennials will continue to fuel a housing frenzy for years, an economist said.
- But there aren’t enough homes for all the millennials who want to buy them.
- That means “higher prices may be the norm” until supply catches up to millennial demand.
We’ve only seen the beginning of millennial housing demand.
That’s the prediction of Dana Peterson, chief economist at non-profit The Conference Board, who wrote about how millennials are driving today’s housing frenzy in a recent article for Barron’s. After spending years struggling to save for a down payment thanks to the fallout of the Great Recession and a mountain of student debt, the generation has finally reached peak age for homeownership as most of them enter the precarious life stage of their 30s.
It’s likely that the housing frenzy will continue thanks to rising incomes, remote work, and a robust economy, Peterson wrote. “The sheer size of the millennial population, and the fact that they are just entering peak years for starting families and earning money, means that demand for housing has room to run,” Peterson told Insider.
As they work from home and grow their families, many millennials are seeking more space. They’re also seeing more money in their pockets as they finally make strides in building wealth and shrinking their debt, according to Peterson. Thirty-something millennials only have $US874 ($AU1,160) in student debt, compared to the youngest millennials who have $US22,953 ($AU30,464) on average, per the Education Data Initiative. Coupled with historically low interest rates, millennials were ready to buy.
A record number of millennials wanted to buy homes in 2020, according to a report from First American from earlier this year. The report found that as millennials became more financially stable with age, their potential homeownership demand has increased by 3.5 percentage points year-over-year, more than any other generation. It explains why data from the National Association of Realtors (NAR) revealed that millennials comprised the largest share of homebuyers in the past year, at 37%.
The only problem is the real estate market can’t keep up.
More millennials than homes
Millennial demand fueled a housing boom that morphed into a housing crisis marked by a severe shortage of homes and supply-chain issues. Prices for the homes that are available continuously climbed upward before reaching a record high of $US386,888 ($AU513,484) in June.
While signs indicate that the housing market that may slowly be cooling off, many of the new homes being built are starter homes, Gay Cororaton, the director of housing and commercial research for NAR, previously told Insider. NAR data shows the stock of homes for resale is at an all-time low, and Census Bureau data reveals that new single-family housing starts are still hundreds of thousands of units below pre-Great Recession levels.
“Higher prices may be the norm until supplies of new and existing homes catch up to demand,” Peterson said, adding that it could hamper home purchases for some potential buyers in the short-term.
It’s created millennials’ second housing crisis as adults. The skyrocketing prices have pushed homeownership out of reach for many millennials, despite some of their peers leading the housing recovery. While the wealthier cohort of the millennials may be better positioned to buy a home, even those who successfully managed to scrape together some savings are facing dwindling chances of homeownership.
But Peterson believes it’s not enough to dampen millennials’ homebuying drive in the long-term amid low interest rates and a “solid economic backdrop.” As Cororaton pointed out, millennials will continue to reach homebuying age until 2040. That could be another two decades of high prices unless builders catch up on supply.