First-time home buyers historically drive the success of the housing market, but due to crippling student debt and recession-inspired low job growth, millennials have been resistant to entering the housing market. However, recent economic improvements, better job growth, entry-level inventory available and more lenient lending standards might be responsible for an uptick in the number of millennials who are investing in their first homes.
Millennials buying new homes
Young adults might finally be ready to make the big move into homes they have purchased on their own. Despite the aforementioned list of reasons why many millennials have decided not to search for houses and become homeowners, individuals from this demographic made an impressive contribution to the housing market in 2014, according to the 2015 National Association of Realtors Home Buyer and Seller Generational Trends study. In fact, this generation accounted for the most significant percentage of home buyers last year. NAR's study noted that 32 percent of all homes bought in 2014 were purchased by adults 34 and younger, and the median age for a young adult who bought a home in 2014 was 29 years old. Last year's results demonstrated for the second year in a row that individuals from the millennial generation represented the most substantial demographic among home buyers. The previous year's report indicated millennials represented 31% of total home sales. Their participation in purchasing real estate continues to help drive the housing market into recovery from the crisis experienced in 2008. These young adults will play a significant part in driving the housing market into pre-crisis health. "Even though the share of first-time buyers has fallen to its lowest level since 1987, young adults in general are more mobile than older households," said Lawrence Yun, NAR's chief economist. "The return of first-time buyers to normal levels will eventually take place in upcoming years, as those living with their parents are likely to form households of their own first as renters and then eventually as homeowners." First-time home buyers are confident in their decision to purchase a home. Consumer confidence has improved as well. Young adults are more interested in purchasing a home because it is ultimately a better financial decision. "Over 80 percent of millennial and Gen X buyers consider their home purchase a good financial investment, and the desire to own a home of their own was the top reason given by millennials for their purchase," stated Yun. "Fixed monthly payments and the long-term financial stability home ownership can provide are attractive to young adults despite them witnessing the housing downturn and subsequent slow recovery in the early years of their adulthood."
New home construction anticipates more millennial buyers
With young adults starting their search for their first homes, construction of new homes continues with younger buyers in mind. Home builders are constructing a higher volume of single-family homes. According to U.S News and World Report, more first-time home buyers will finally begin to emerge.The total number of newly constructed single-family homes increased in January 2015, noted the U.S. Census Bureau. With more first-time home buyers becoming interested in making the transition to owning houses of their own, the size of a typical starter home is smaller. The market is likely mostly responsible for the more petite homes constructed by builders. The average size of a single-family home built in 2014 was about 50 square feet smaller than the estimate from 2013. A stronger entry-level housing market is expected to continue throughout the rest of the year. The notable surge of first-time home buyers investing in real estate and driving the market will likely continue contingent upon employment growth, job security, home availability and whether better salaries continue for individuals across the country.
Rising rental rates may influence a spike in housing market activity
There are a number of U.S. cities that continue to see jumps in the average cost of renting a residential space. According to Zillow, metro areas such as Denver, Kansas City, Nashville, Portland and Charlotte have seen the most significant spikes in rental rates. These jumps can be especially frustrating for those who decide to rent instead of buy. It may influence some individuals to decide to purchase a home in lieu of continuing to spend outrageous portions of their salaries on renting property. Popular regions, like San Francisco and San Jose, have seen increases in rental rates on a year-over-year basis. San Francisco saw an increase of nearly 15 percent and San Jose followed closely behind with 13.4 percent. With rising rent, job growth, more lenient lending standards and mortgage accessibility, a high volume of inventory and stronger financial security, more young adults might consider investing in a home to save money and build home equity. The first-time home buyer is crucial to the success of real estate. The beneficial factors inspiring young adults to buy may help bolster the housing market and lead to a particularly successful upcoming home buying season.