Will Millenials Speed Up the Housing Recovery?
The oldest millennials are turning 30 and many of them have yet to enter the housing market, choosing instead to live at home with their parents. While some are living at home because they cannot find a job that will allow them to provide for themselves, others have good jobs and are quietly saving money to put towards the purchase of a home.
A study by Harvard’s Joint Center for Housing Studies says, millennials really do want to move out, and by 2025 could create 24 million new households. That’s not a small number and will affect the current housing cycle.
According to a Pew census, roughly 11 million recent graduates were living with a parent in 2012. The homeownership rate for those under age 35 was 36% in the first three months of 2014, down from a high of 43% in 2005, according to the census.
The three main factors that have been holding millennials back from becoming homeowners are a weak job market for recent graduates, high interest student loans and tight lending standards. As the economy turns around, the home buying troubles for millennials are slowly becoming less of an issue.
The housing market is directly related to the job market and as more jobs are created that put millennials to work the more we will see the housing market recover. Once millennials feel comfortable and are able to get a mortgage the overall housing market should see a boost. The starter home market will be the first to feel the effects from the influx of new young buyers. For investors that means looking towards areas of the U.S. with low unemployment rates. Major metropolitan areas that are attractive to young homebuyers should also continue to grow, spurring both local and regional home markets.
There are some factors that could keep or slow down millennials from buying homes. Even with recent news showing economic improvement, millennials face only slow economic gains. The unemployment rate is falling, but wage growth has been slow to catch up. Even though there are more jobs available they aren’t paying their employees what they should. Millennials must also still deal with increasing student loan debt and tight lending standards. Keep an eye on lending and any new laws pertaining to student loan debt because that could have a huge impact on millennials entering the housing market.
Some predict that instead of the anticipated housing boom from the large group of millennials still living with their parents we may only see a slow trickle of new homebuyers. Citing that not all millennials are making enough money to afford new homes. Investors should be keeping their eyes on areas of the country that are hiring young college graduates with the idea that those are the areas that will see the biggest opportunities.
Whether the millennials take their time to become homeowners or create a rush and boost the market one thing is true. They are here and at some point will have an impact for years to come.