Millennials aren’t buying homes because they feel housing is too expensive and their financial futures are too uncertain.
They’re also staying single longer, living with parents longer and staying in apartments longer, about six years on average, according to Zillow.
But cast aside the doom-and-gloom for a moment and consider this: As incomes stabilize and millennials grow older and start families, they’ll likely make buying a home a top priority.
Look at the numbers from The Demand Institute, a nonprofit think tank that studies trends in consumer demand:
- Millennial household formation is expected to go up 48 percent by 2020
- 75 percent of millennials believe homeownership is an important long-term goal
- 73 percent consider owning a home a valuable long-term investment.
What does this tell us?
Despite waiting longer to buy homes, millennials, if bolstered by the right mix of economics, are poised to become a formidable force in the housing industry and may soon outpace baby boomers, their close contenders.
What’s the holdup?
Millennials are possibly playing the waiting game because the post-recession recovery has just been too modest.
Wages for most young adults have not rebounded to pre-crisis levels. Income growth has been sluggish. And existing long-term debt hasn’t diminished, with 42 percent of millennials ages 18 to 29 paying student loans, according to the Harvard Institute of Politics.
Throw in rising home prices and dwindling inventory, and it’s clear why millennials may perceive homeownership as something out of reach.
Fannie Mae predicts there will be a rebound in young adult homeownership despite recent U.S. Census Bureau data showing that homeownership rates nationwide have plunged to just under 63 percent, the lowest since 1965.
While depressed rates historically are more pronounced among young adults, homeownership gains have also been greater among the country’s buyers in their late 20s and early 30s.
They were the largest share of homebuyers last year, according to the National Association of Realtors. This bucks claims that young adults aren’t interested in homebuying, and suggests that years of pent-up demand may soon boil over.
Here comes the ‘boom’
But what about the baby boomers, who rival millennials in sheer number and home buying activity?
Together, adults between the ages of 51 and 69, made up the second largest group of homebuyers in 2015, according to the NAR. This is the same generation who, contrary to predictions, has eschewed downsizing to apartments, instead opting to remain in single-family homes.
What does that mean for housing?
When boomers do make a move, it will be seismic and significant. If they migrate to apartments, the shift could depress single-family home prices and spur changes in how apartments are constructed, according to Fannie Mae. If they stay where they are, then the housing shortage will get worse for millennials.
Opportunity on the horizon
Harvard’s Joint Center for Housing Studies expects boomer-headed households to begin dissolving in 2030, with the last of the boomers dying out by 2060. It’ll be a while before millennials supplant boomers as the market’s primary buyers.
Others are more optimistic: Jonathan Smoke, Realtor.com’s chief economist, is confident that millennials are no different than prior generations and will soon make a shift to homeownership.
Either way, millennials, America’s largest generation, are growing older. They’ll likely make more money and increase their spending. Add that to historically low interest rates, low down payment programs and various mortgage loan options, and it’s possible we’ll see millennials expedite their path from mom and dad’s basement to homes all their own in the coming years.