Younger Buyers, Renters Express Growing Optimism About Housing Market's Future

By stacey.hedrington@nafinc.com January 28, 2015
If the housing market's long-term recovery is dependent on the interest of younger buyers, the latest Housing Confidence Index released by Zillow should offer some promise. The most recent quarterly market research report, based on data compiled through the summer of 2014, was titled "Will Youthful Exuberance Today Mean More Sales Tomorrow?" Its findings revealed a renewed sense of optimism from prospective younger homebuyers - specifically those of the millennial generation - highlighted by the 80 percent of responding 18-to-34-year-old renters who affirmed confidence in their ability to one day own a home. There's a perception that, either because of the residual damage inflicted by the housing market's downturn or a general lack of financial viability, millennials don't view homeownership as a worthy goal. But many of the study's discoveries rendered that notion inaccurate, with nearly two-thirds of young adults reporting that owning a home is necessary to achieving "the good life" and "the American Dream." That budding perception may be partially due to outsized expectations for returns on those investments. Young adults, in particular, have high hopes for property value appreciation rates over the next decade, and they proved more likely than their older counterparts to believe home prices will rise rapidly. Still ground to gain As Stan Humphries, Zillow's chief economist noted, roadblocks related to mortgage credit approval standards and wage increases remain, but there's a growing sense among younger renters that buying is a viable option in their future. Perhaps most encouragingly, millennials who already own homes are exhibiting better rates of mortgage fulfillment than their predecessors - a sign that they don't take their responsibilities lightly and have approached the process with the requisite preparation and savings. "It's heartening to see younger renters express so much confidence in their ability to buy a home in coming years, because today's renters by necessity are tomorrow's buyers," Humphries said. "Cynics might argue that these results represent no more than youthful exuberance, or perhaps some naiveté, but that's missing the point. We need this generation to be confident and wanting to buy, regardless of the difficulties they face." Perhaps the biggest difference in homeowning approaches today from 25 years ago is seen in the timeline. Younger renters have by and large seen their homebuying plans delayed, and that trend manifested itself in the Zillow data. Just 36 percent of younger renters expect to buy a home within the coming year, while a little more than half - 54 percent - foresee a purchase within the next three to five years. Still, those rates reveal more optimism than was exhibited by older renters - only 10 percent of whom plan to buy a home within the next year. Appropriate preparation Regarding homeownership as a long-term investment, millennials surveyed by Zillow displayed more traditional mentalities than some of the older renters. Sixty-five percent of 18- to-34-year-old renters agreed owning a home is the best investment over time, compared with just 59 percent of renting members of Generation X and 61 percent of baby boomers. While that gap is not especially substantial, it's still promising to see the fallout from the recession hasn't totally discouraged millennials from pursuing homeownership. As a HousingWire report noted, post-recession credit approval standards are still tight and the average worker's wages have increased only modestly since the recession ended. Despite those challenges, the outlook for the housing market's future is optimistic, at least as far as most current renters are concerned. That may be in part a function of the rising costs associated with rental units, particularly in major metro areas, but it's an encouraging sign regardless. A separate study released by The Demand Institute noted the dwindling number of younger adults still living in multigenerational households. While most of those millennials are transitioning out of their parents' homes and toward renting, the shift still represents progress. More importantly, there's a sense that young people are assuming a greater level of accountability and understanding when it comes to the responsibilities associated with homeownership. Those who have already bought property are paying their mortgages on time - at more consistent rates than older generations - and many prospective buyers report actively saving and improving upon their creditworthiness. "Although strong aspirations are no substitute for financial capacity or creditworthiness on a mortgage loan application, this feedback from millennial renters is significant because it confirms that they bear relatively few psychological scars from the housing bust, and because the attitudes of this generation will drive housing trends in the decades to come," Terry Loebs, founder of research firm Pulsenomics, told HousingWire. If that attitude results in a renewed sense of fiscal responsibility, consistent home sales activity and improved rates of mortgage fulfillment, then the market as a whole will stand to benefit over the long term.