Housing market concept image with graph and toy house
Millennial homeownership dropped from a three-year high of 36 percent in the fourth quarter 2017 to 35.3 percent in the first quarter of this year, according to recent data from the United States Census Bureau.
What’s causing young adults to start shying away from home buying? According to CNBC’s housing and real estate contributor, Diana Olick, the culprit is clear: weakening affordability and lack of available starter homes.
“Millennials make up the largest share of those seeking starter homes, a portion of the market that saw inventory plummet 14.2 percent and prices leap nearly 10 percent year-over-year in Q1 2017,” wrote Cheryl Young, a senior contributor at Trulia.
Meanwhile, the rate of homeownership for Americans age 35-64 increased.
The result of more older Americans buying homes while fewer young adults followed suit, is a stagnant market where the figures are essentially unchanged. The overall homeownership rate stalled at 64.2 percent, exactly the same as last quarter’s figure, after rising steadily from 63.6 percent a year ago. According to CNBC, homeownership rates dropped to a 50-year low of 62.9 percent in 2016, following the housing market downturn.
“The culprit is pretty clear: weakening affordability,” writes Olick. “Home prices have jumped dramatically in the past year, and the gains accelerated in the first quarter of this year, as the supply of homes for sale continued to drop to record lows. Mortgage interest rates also surged at the start of this year to the highest level in four years.”
Despite higher home prices and mortgage rates, the demand for housing has not faltered. Most Americans still desire to own a home, particularly as rent price increases continue to make renting less attractive.
Still, the robust demand has only fueled the price appreciation for housing markets across the country. Starter homes in the lower price points have been particularly scarce. According to data from the National Association of Realtors® (NAR), the supply of starter homes was so low in March, sales in that segment were 21 percent below March 2017. Sales of homes in higher price tiers increased.
“The homeownership rate climbing out of its 50-year low should be seen as an opportunity for builders in the for-sale space,” Young remarked. “The sharp increase in renter households coming out of the Great Recession has finally begun to moderate as older millennials and Gen Xers shift into homeownership, presenting a boon for new construction.”
Speaking of new construction, sales of newly built single-family homes saw a 4 percent increase in March, according to data released by the National Association of Home Builders (NAHB). This brought the seasonally adjusted annual rate to 694,000 units after an upwardly revised February report.
“The March new home sales report is consistent with out solid builder confidence readings over the past several months,” said NAHB Chairman Randy Noel, a custom home builder from LaPlace, La. “As consumer confidence grows and more prospective buyers enter the housing market, the sales numbers should continue to make gains.”
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