Housing boom: Millennials will drive up house prices for years to come, Conference Board economist says

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About the Author: Dana M. Peterson is the chief economist of the Conference Board.

Housing is hot, but who is driving the frenzy? Millennials. Yes, despite more than a decade of depressing anecdotes about parenting in the basement and too many roommates, this group is now leading America’s real estate boom. This is no flash in the pan: Millennials will likely fuel housing demand for years to come.

What is driving the millennium real estate boom? Reduced debt, increased wealth, growing families and low interest rates.

Millennials are working and reducing their debt. Born from 1980 to 1995, millennials are between 26 and 41 years old and represent 22% of the American population, or 72.8 million people. They also represent an important part of the workforce, 36%. They accumulate savings to pay off student loans and other obligations, a critical barrier to homeownership. The Education Data Initiative estimates that while the youngest Millennials have an average of $ 22,953 in student loan debt, those in their early 30s have only $ 874 and those in their early 40s have more than paid off their debt.

Student loan forgiveness and stimulus checks have also helped reduce debt and provide money for down payments. From November 2020 to April 2021, 3,458 applicants received a loan release from the Public service loan remission program. The total forgiven was $ 583 million. In addition, 95,000 applications were approved under the borrower advocacy program, along its entire length, with nearly $ 600 million unloaded.

And people aged 25 to 39 received more than $ 380 million in federal stimulus, as of March 2020. This group used 49% of the money for goods and services, 33% to pay off debts, and 18% for savings and investments, possibly including homes.

Millennials have wealth. The median net worth of those aged 34 to 44, which includes the oldest millennials, was $ 91,300 in 2019, compared to $ 64,600 in 2016, when many Gen Xers were the same age. In the midst of the pandemic, all millennials who owned financial assets, received stimulus checks, or both, have likely seen further increases in their net worth since 2019. Many in this group have recently discovered investing. . A 2021 survey carried out by Charles Schwab found that the median age of people who started investing during the pandemic was 35, compared to 48 for those who started before the pandemic. Millennials represent 51% of new investors in the era of the pandemic.

This cohort forms households, gets married and has children, which requires space. The number of households headed by adults 30 to 44 years old years jumped 1.3 million during the pandemic. Married couples aged 31 to 40 were more likely than any other age group to buy homes, according to a 2021 study by the National Association of Realtors. In addition, the largest group of unmarried couples who bought a home were adults between the ages of 22 and 30. The same survey found that Millennials between the ages of 31 and 40 were the most likely (61%) to have at least one child under the age of 18 in the home.

Low interest rates also facilitate demand for millennials homes. The share of millennials buying a home has increased over the period 2015-2019. The pandemic has only amplified this trend. Homeownership has jumped for those under 44 in 2020, as Federal Reserve rate cuts pushed mortgage rates to historic lows. In fact, millennials were the biggest part of home buyers (37%) in the past year.

What will keep this trend going? Rising incomes, remote work and a robust economy.

Millennials are approaching their peak earning years (45 to 54), a critical time for financing a home. The median annual income of this group was $ 77,800 in 2019. Older millennials aren’t quite here yet, but even for the 34-44 age group of Americans, the median annual income was already $ 74,300 in 2019, which suggests that millennials have the earning capacity necessary to become homeowners. Over the next two decades, a quarter of the U.S. population will achieve peak income years, fueling continued demand for housing, especially for cheap starting homes, which had a starting price of $ 304,200 in the second quarter of 2021.

The standardization of remote working is expected to continue to drive the millennial demand. An April 2021 YPulse study found that 55% of millennials want to work from home after a pandemic. Additionally, the same National Association of Realtors study found that Millennials were the most likely to say that their reason for owning a home was to have space of their own or for a larger residence – 62% of people aged 22 to 30. and 54% of 31-40 year olds. As working from home is likely here to stay, the demand for millennial housing has room.

Of course, some millennials still face home buying issues. Most notably, high student loan debt remains a burden for many, especially those of color. and high house prices exclude some potential buyers from the market.

Yet demand from this important consumer group is expected to persist for several years. This is given on probable continuation relatively low interest rate, a solid economic context which supports employment and the ever-renewed hope of realizing the American dream, with home ownership being a central element. This knowledge should be good news for the economy and for businesses that can help meet the unique needs of these young homeowners.

Guest comments like this are written by authors outside of the Barron’s and MarketWatch newsroom. They reflect the views and opinions of the authors. Submit comments and other comments to [email protected]


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