Housing market pundits have been all abuzz about the millennial age group after the U.S. Census reported that through 2013, the largest “age cohort” in the United States was 20 – 24, followed by 50 – 54, 25 – 29, and 30 – 34. Put differently, three of the four largest age group populations in the United States run from ages 20 – 34. (Calculated Risk )
Not so coincidentally, it is also the “millennial” age group (those born after 1982) that is a key reason for the changes in the housing market outlook. Though we have seen notable steps to recovery in the past several years – prices, values, and sales are all up – a lag in first-time buyer activity – just 27% compared to the historic 40% “norm” – has been cause for speculation and concern.
When we talk about millennials and changing demographics, these are the usual statistics that are listed:
– Millenials are delaying household formation. According to a recent Pew report, 26% of people born after 1982 (Aged 18 – 32) are married… compared to 36% of Generation X at the same age and 48% of the Baby Boomer generation. (Pew Research Center)
– Millenials are opting to rent or live at home rather than purchase a new home. During the downturn, more young people lived with their parents – 2.1 million adults in their 20s and 300,000 more adults in their 30s. (RealtyTrac).
– Millenials are staying in school longer and taking on student debt. (HousingWire)
– Millenials are having a bit of trouble finding work. The recent U.S. recession slowed entrance to the workforce. Just 75.6% of U.S. citizens between the ages of 25 and 34 are employed. (CNBC)
All of these factors add up to a lower homeowners rate (37.9%) for the 25-34 age group than has been historically average. In 1980, the ownership for that age group was over 50%.
Now for the positive part. Just because millenials are deferring homeownership (and household formation) does not mean they are eschewing it. A recent study by the Harvard University’s Joint Center for Housing Studies projected 24 million new households will be formed by millenials between 2015 and 2025 (RealtyTrac).
But when the households form, will they be looking to purchase? RealtyTrac demographer Peter Francese thinks so (LINK):
“Despite their low rates of household formation there are now about 33 million Millennial households, and most of them are renters. In five years we conservatively project that there will be over 40 millennial Millenial households ages 25 to 44, and at least half of them will be homeowners.”
Francese argues that new household formation will account for 5 to 7 million more home sales. And as first-time buyers ramp up activity, property values will increase. Increased demand will spur construction and give incentive for existing owners to sell at lower ends of the price spectrum.
So how do you solve a problem like millenials? Just give them a little more time to grow up.
About Last Week…
First quarter GDP was revised downward, from -1.0 percent growth to -2.9 percent growth. Gross Domestic Product, which measures to sum of all goods and services produced, slowed partially due to weather, which weighed on consumption.
Merrill Lynch noted, “the downward revision owed to two primary factors: weaker consumer spending on healthcare and a wider trade deficit.” (Calculated Risk)
Consensus seems to be that the poor reading was a mix of seasonal factors and bad luck, and that the economy is stronger than the contraction would indicate.
Mortgage rates dipped notably as a result of the poor news. In the past seven days, the 30-year fixed has dipped about 0.750% of a point in cost, moving the APR on a 4.000% 30-year fixed from 4.173% APR to 4.109% APR. The lower rate is a nice little incentive to close sooner rather than later.
See our post HERE for a rundown of the downward movement.
Last week we wrote about the FHA 203k loan, which helps buyers purchase a home and renovate / improve it – all in one mortgage. For more information.
Markets will be closed on Friday for the holiday. The big news that will impact mortgage rates will come on Thursday with the release of June employment statistics in the U.S.
Central Coast Lending is a California mortgage broker and direct lender based on the Central Coast of California in San Luis Obispo County. Call us today at 805.543.LOAN or email email@example.com to set up a free pre qualification. We are The Mortgage Experts: ask us anything!