Millennials help power the U.S. housing market rebound in 2020

Millennials, long seen as renters who were reluctant or unable to buy, are emerging as a driving force in the US housing market’s recovery.

Demand from millennials, then in their mid-20s to late 30s, had become increasingly important to the housing market since at least the middle of the previous decade. More recently, this generation had become an even stronger influence on home purchases.

Millennials reached a milestone in early 2019, when they first accounted for more than half of new home loans. They remained above that level in the first months of 2020, according to Realtor.com. According to the National Association of Realtors, they represented 38% of homebuyers in the year ending July 2019, up from 32% in 2015.

According to the Pew Research Center, millennials surpassed baby boomers as the largest living adult generation in the US in 2019. The largest cohort was born in 1990 and was turning 30 in 2020. Odeta Kushi, deputy chief economist at First American Financial Corp., expected demand to grow as this cohort reached 31 and 32. The firm estimated that millennials could account for at least 15 million home sales over the following decade.

Rising millennial homeownership challenges the view that emerged after the 2007–2009 recession that this generation would remain renters indefinitely because of student debt and concerns following the foreclosure crisis. This had raised questions about their ability to build savings and wealth through homeownership. Agents and economists now suggest that their interest in buying was delayed rather than absent.

Older millennials are marrying and having children later than previous generations, after completing their education and building savings. Demand is also growing as younger millennials enter their 30s and become more active buyers. These ages are closer to those at which many baby boomers and members of Generation X began buying homes.

Rick Arvielo, chief executive of mortgage lender New American Funding, said millennials were reaching homebuying age and showing the same desire to own homes as earlier generations. Younger buyers were an important factor in the continued recovery of home sales in July 2020.

Sales of previously owned homes rose by nearly 25% in July 2020 to their highest seasonally adjusted annual rate since December 2006. First-time buyers accounted for 34% of sales, up from 32% a year earlier, according to the National Association of Realtors. Low interest rates and the desire for more space during the pandemic were supporting demand among Americans of all ages.

Some millennials have additional reasons to buy, particularly those with young or growing families. Sandra Martinez-Gonzalez, a 32-year-old living in Las Vegas, had valued the freedom of renting. When she looked for a new rental home at the start of 2020, however, she found that buying would be cheaper in her neighbourhood.

Martinez-Gonzalez, her husband and their two-year-old daughter moved into their first home in July 2020. She welcomed the extra space and a home office. A strong housing market can support the wider economy because home purchases often lead to spending on furniture, appliances and renovations.

Homebuilders have expanded activity in response to demand. Some equity analysts have cited the stronger housing market as a factor in the US stock market’s recovery, despite high unemployment and concerns about the pandemic. Millennial demand may not persist at the same level: the recession has been a major setback for younger workers who lost their jobs.

Persistently high unemployment could slow millennial homebuying in the coming years. For those still employed, very low interest rates reduce monthly repayments and make purchases more affordable. Freddie Mac reported an average rate of 2.99% on a 30-year fixed-rate mortgage, close to record lows.

House prices have nevertheless risen relative to incomes over the previous decade, making a deposit a major hurdle, particularly for buyers with student debt. In the year ending July 2019, more than one in five buyers in their 20s and 30s used a gift from family or friends towards their deposit, according to the National Association of Realtors. Some millennials were also willing to move to another state to buy.

Rachelle and Phillip Nelson chose to build their savings after marrying in 2013. House prices in Fort Collins, Colorado, then rose beyond their budget, according to Rachelle, then 28. After Phillip found a new job in June 2020, they looked in Cheyenne, Wyoming, and completed the purchase of a two-storey home the following month. She said his new job had enabled them to proceed with a long-planned purchase.

Source: The Wall Street Journal