Millennials Are Supercharging the Housing Market

When the pandemic cut short his travels last year, Mr. Engert, 31, decided to take a job in public relations in Richmond, Va. She and Mrs. Engert, who is also 31 years old and works for a healthcare tech company, began looking for a home. Spring. After losing out on several offers, he increased his budget to $400,000. In July, he downed $635,000 on a three-bedroom ranch in a tree-filled lot near the Richmond Country Club.

“If I hadn’t traveled, I would have faced all these regrets in life,” said Mr. Engert. But it seems like the right time to settle down and get some roots.

For years, conventional wisdom held that Millennials, born from 1981 to 1996, would become the generation that largely turned down homeownership. Instead, since 2019, when they overtook baby boomers to become the largest living adult generation in America, they have reached a housing milestone, accounting for half of all home purchase loan applications last year. responsible for more.

The generation’s growing appetite for homeownership is a major reason why many economists predict that home buying demand is likely to remain strong in the coming years.

Rarely has the domestic market for sale been hotter than in the past year. According to the National Association of Realtors, the average price of an existing home sold in October was about $354,000, close to a record and about 13% higher than the year before. Prices have risen for 116 consecutive months compared to a year ago, with double-digit percentage gains in every corner of the US this year.

The frenzy has subsided a bit in recent months. Real estate agents say more buyers are stopping their searches or walking away, frustrated by prices and the lack of homes for sale. Some market watchers expect home sales to drop below or above current levels. They say the Covid-19 pandemic produced a sudden, unexpected spike in home purchases that would not be repeated, pushing sales that would have spread over many years.

But most housing analysts don’t expect a wave of sustained home price cuts to last long. They say the pandemic and the emergence of remote work have already accelerated the millennial home buying trend. Young families living in apartments decided to buy homes in the suburbs or leave the expensive cities for cheaper ones. Millennials who already own homes traded in for more space. Restraints on student-loan payments, federal stimulus checks and a booming stock market helped some first-time buyers pay the down payment.

Generations accounted for 67% of first-time home-buying mortgage applications and 37% of repeat-purchase applications in the first eight months of 2021, according to CoreLogic. And while the largest group of millennials turns 30 this year—under the age of 33 for a first time buyer—those percentages could rise higher still. This is especially true because more recent than previous generations of millennials are getting married and having children later in life, events that can often motivate home purchases.

The financial stakes are hardly high for millennials, who have faced a wide wealth gap with previous generations. With the 2008 financial crisis and housing-market collapse burdened with student loans and career paths looming, many millennials lacked savings for a down payment in their 20s. As some distrustful homeowner investments. Credit standards tightened after the housing crash, making it more difficult for many young borrowers to qualify for loans.

Some real-estate brokers also recognize that Millennials prefer to rent and spend money on travel and experiences rather than buying a home. “We talked for years about why Millennials prefer to ‘have’ rather than ‘have’,” said Richard Ruvin, a realtor at Keller Williams Milwaukee North Shore in Wisconsin.

But sitting on the sidelines meant missing out on one of the biggest sources of wealth creation for generations past: equity in a home. According to the Federal Reserve Bank of St. Louis, in 2019, homes for older millennials were about 11% less than expectations based on the same age as older Americans, while younger millennials had 50% less net worth.

Home prices have soared over the past year, raising questions about whether now is the best time to jump into the market. But buying a home is still more affordable for many first-time buyers today than it was in older generations, said Mark Fleming, chief economist at First American Financial Corp. That’s because incomes are high and mortgage-interest rates have dropped above 10%. Up to about 3% today in the 1980s.

According to NAR, a typical mortgage payment for an existing average-priced US single-family home made up 17% of the median family income in the third quarter of 2021. This is down from about 23% in 1990, when many baby boomers were in their late 20s and 30s.

The main challenge for millennial home buyers, Mr. Fleming said, is not whether they can buy a home, but whether they can win a bidding war. The frenzied market this year has made it especially difficult for buyers with small down payments to compete. First-time buyers often lose out to all-cash buyers or investors buying homes to flip or rent.

Rising millennial demand coincides with the housing shortage that is proving to be persistent. There were 1.25 million homes for sale at the end of October, down 12% from a year ago. Mortgage-finance company Freddie Mac calculated at the end of 2020 that the US housing market was short of the 3.8 million single-family homes needed to meet the nation’s demand.

Brokers and real estate executives say this mismatch is providing a floor of sorts for the market, with an army of buyers ready to swoon and take action. About 32% of millennials surveyed by housing-research firm Zonda in late 2020 and early 2021 said they plan to buy a home in the next one to three years, or as soon as they can save for a down payment. has created. Only 7% said they never planned to build their own home.

“You could have record-high levels of demand in the coming years,” said Ryan Dobratz, co-principal portfolio manager at Third Avenue Real Estate Value Fund, which invests in real-estate companies, including home builders and land developers. . “It’s simply because the millennial group is finally moving into single-family housing in a big way.”

Mariel and Matt Balban, who are 35 and 36 respectively, were happy living in a rented apartment for years, but having kids changed their perspective. When the pandemic struck, Mrs. Balban was pregnant with their second child, and they decided to move from California to Pennsylvania to be closer to their families. After visiting more than 30 homes, the couple accepted their fifth proposal this spring in a four-bedroom home in Wayne, Pa.

“My husband and I both grew up in houses with yards and neighborhoods, and I think we both wanted that for our daughters,” said Mrs. Balban.

According to a Freddie Mac analysis of credit-bureau data, approximately 31% of older millennials and 43% of younger millennials do not currently have a mortgage but may qualify for one.

In the first eight months of the year, Millennials comprised the highest share of purchase mortgage applicants in San Jose, California; Austin, Texas; According to CoreLogic, and Seattle, all metro areas have a high number of tech jobs. CoreLogic said Millennials also accounted for more than half of applicants in more affordable markets like Pittsburgh, Milwaukee and Buffalo, NY.

“We have a lot of people who choose to rent for a lot longer than they did 10 or five years ago,” said Dana David, a real-estate agent in the Buffalo area. “Instead of buying your first home and having it be a $150,000 home, we are now seeing a lot of first time home buyers in the $250,000 to $350,000 range.”

Increased millennial shopping has begun to change the face of American homeownership. The millennial generation has more black and Hispanic families than the older generations. About 45% of millennials are non-white, compared to about 40% of the generation born between 1965 and 1980; And 28% of baby boomers, according to the Pew Research Center, were born between 1946 and 1964.

According to the Urban Institute, the homeownership rate for white households is projected to exceed the homeownership rate for non-white households over the next two decades. But the number of white homeownership households will decline between 2020 and 2040, the policy research group said, while the net increase in homeownership households will be non-white.

Latino homeownership in America is growing at a record pace. According to Census Bureau data compiled by the National Association of Hispanic Real Estate Professionals, an industry group, the number of Hispanic homeowners increased from more than 700,000 to nearly 9 million last year. That growth was primarily fueled by younger shoppers: The median age of Hispanics in the US in 2019 was 30 years old, nearly 14 years below the median age for non-Hispanic white Americans.

Hevart Somillon, who is 31, teamed up with his mother, Lourdes Somillon, in February to buy an apartment in Granada Hills, California, a three-bedroom home with a pool and a separate garage.

“I feel like I am indebted to my family as an immigrant. I love ownership. Ultimately you pay it off, and it’s yours,” said Cuban-born Mr. Somilan.