During the month of September, while both new and existing
home sales rose slightly, there was one group which continues to remain
somewhat on the sidelines:
the
first-time buyer.
According to the
National Association of Realtors®, in September the share of first-time buyers
was 29 percent for the third straight month.
Since historically the share of first-time buyers has been
closer to 40 percent, given that these buyers have represented less than 30
percent of the market in 17 of the last 18 months, it’s almost certain that
this change will have an impact on the housing market in the future. So just where have these first-time buyers
gone, and what are their plans for their housing needs?
For now, most are choosing to rent: according to the Census Bureau, the share of
households age 25 to 29 who owned their own homes fell from nearly 41 percent
in 2007 to 34 percent by 2013, which is great for landlords but not for the
neighborhood stability which accompanies higher percentages of homeownership.
Not surprisingly, the primary reason they’re choosing to
rent for now is economic:
according to
the non-profit group Generation Opportunity, unemployment rates for millennials
(those born between 1980 and 1995) remain higher than for other age groups.
Even when they do find employment, many jobs are
either part-time or offer low, entry-level wages which wouldn’t help them
qualify for mortgages.
Considering that the average worker today doesn’t earn the
national median salary until age 30 – versus age 26 in 1980 – a four- or
five-year delay in reaching traditional milestones such as getting married,
starting families and buying homes seems to mirror the temporary disappearance
of many first-time homebuyers.
Consequently, if the median age for a first-time homebuyer has been about
31 -- and 47 for a move-up buyer -- any delays in grabbing the first rung of
that homeownership ladder are likely to have an impact on future purchases.
In addition, other factors have also been at play here,
including tougher mortgage loan standards, a lack of entry-level home
inventory, and student loan debt that often must be paid down before buyers can
qualify for a mortgage.
Meanwhile, young
adults trying to save for down payments must also contend with rising housing
costs, with many households paying 30 percent – and much higher in high-cost
cities – of their incomes on rent.
Fortunately, despite these considerable headwinds facing
young adults, the ongoing speculation that millennials won’t embrace
homeownership as much as previous generations simply isn’t true:
It’s simply being delayed.
In fact, according to recent research from
Zillow, the dip in first-time home buyers has been much more about long-term
changes in family structures that it is about current economic conditions.
If anything, young adults are simply trying
to navigate a mortgage system that simply hasn’t kept up with the times.
Given that 90 percent of today’s mortgages
are supported by various government programs (up from 40 percent a decade ago),
another reason for fewer first-time buyers could simply be a lack of mortgage
options which would open up the lending spigot.
Indeed, for married, dual-income couples, the homeownership
rate is actually above pre-recession historical levels, whereas it has dropped
for the increasingly rare, traditional family structure of two parents who live
on a single full-time income.
For young
singles, although the rate of homeownership has been mostly flat over the last
decade, this rate still seriously lags those of married couples.
Consequently, if the rate of marriage for
young adults today stands at about 26 percent – compared with 36 percent of Gen
Xers, 48 percent of baby boomers and 65 percent of the Silent Generation at the
same age – we certainly shouldn’t be surprised at their delay in settling down
and buying homes.
For builders, the challenge is to offer homes today that
millennials want, and that means more urban-oriented projects close to transit
centers that can effectively compete with upscale rental projects which
continue to offer more compelling amenities.
As for the millennials themselves, the future job market is
already pivoting towards them, as many of them sat out the poor labor market of
the recession by improving their education.
Last year, 34 percent of those aged 25 to 29 held some type of college
degree, making them the best-educated cohort since 1968.
With their comfort of the latest technologies
and awareness of current cultural tastes, for many employers the combination of
these factors at a lower salary than older, more seasoned candidates will prove
hard to resist.
Please click here to see the edition of BuilderBytes for 10/31/14 on the Web.
Please click here to see the edition of BuilderBytes for 10/2/14 on the Web. 
