Washington - For years, millennials looked at owning a
home as a distant fantasy. Student debt and a weak job market seemed to
conspire to keep this generation stuck in their parents' basements, if not
permanently locked out of the housing market.
But as millennials find better-paying jobs, start
families and begin searching for their first homes, they're encountering an
unfortunate reality: Just as they're finally ready to buy, the housing market
has the fewest homes available for sale on record. And those that are for sale
are increasingly priced at values inaccessible to first-time buyers.
As a result, the housing market is booming for those with
cash to spare - but not for millennials looking to own their first home.
Keona and Cameron Morrison, both 31 and with a combined
income of $150 000, have been looking to buy in Los Angeles for two years.
"There's stuff that comes [on the market];
literally, a couple days later, it's pending," Keona said. "It's
crazy."
Teree Warren, a 31-year-old forensic scientist who grew
up in Prince George's County, Maryland, isn't faring much better in the
Dallas-Fort Worth area.
"The houses go so quickly," she said.
Overall millennials are falling behind other generations
in homeownership, with first-time home buyers, who usually consist of 40
percent of the market, stuck at 34 percent.
That could become damaging to this generation's future
prosperity. Housing experts say homeownership remains one of the primary ways
for the middle class to build wealth, despite the ups and downs of the past
decade. And with mortgage rates beginning to creep up, millennials who have to
wait to buy could miss out on historically low rates.
"Owning a home for a longer period of time creates
more wealth," said Christopher Herbert, managing director of the Harvard
Joint Centre for Housing Studies. "If you shrink that amount of time,
you're going to shrink how much wealth it creates."
For Keona Morrison, the challenge of finding a home feels
deeply personal.
"I feel like if there were more African Americans
owning homes, we could set our children up for greater success," she said.
"It's all about having that leverage. ... I guess what homeownership means
to me is just having your own place, having something you can fall back
on."
For years after the recession, most millennials couldn't
afford to even consider entering the housing market. Many were saddled with
student debt, and the labour market wasn't friendly even to young college
grads, contributing to the stereotypical image of the barista with a bachelor's
degree.
But as the economy has improved, so have millennials'
fortunes.
Improving economy
The most recent employment data shows that the percentage
of 25-to-34-year-olds in the labour force is the largest in eight years. This
group has also recently begun to enjoy stark wage gains. Recent census data
showed that in 2015, millennials' incomes jumped 7 percent, far more than most
other groups'. Seventy-two percent of millennials rate their personal financial
situation as fairly good or very good in 2016, up substantially from three years
earlier, according to a recent Harvard Institute of Politics poll.
In a stronger financial position, more millennials are
starting families. The census projects that household formation will average
about 1.5 million per year through 2020, up from the 900 000 annual average in
the past five years.
But when looking to leverage some of their newfound
financial strength to buy a home for themselves or their new families,
millennials are finding a less optimistic picture.
The National Association of Realtors reported in December
that the number of homes for sale nationally had fallen to its lowest level
since the organization began keeping track of inventory in 1999. Inventory
picked up slightly in January, but the year-over-year number of listings has dropped
for 20 consecutive months.
At the current sales pace, the supply of homes would be
exhausted in 3½ months. (A healthy market has about a six-month supply of homes
for sale.) More than a fifth of housing markets across the country have a
three-month supply of homes, double what it was two years ago, according to Pro
Teck Valuation Services, a real estate analytics company.
Entry-level housing, the homes millennials can most
afford, has been particularly scarce. The expensive Washington, DC, region has
less than a 90-days supply of condos costing between $400 000 and $600 000. In
the Dallas area, where Warren is looking to buy, barely a one-month supply of
those homes are for sale.
Warren said a friend of hers listed his house on a
Thursday at 10 a.m. By noon, he had six appointments. By the end of the day, he
had 10. His house sold on Sunday for far more than the asking price.
"It is very nerve-racking, the pressure that you
have to make a decision very quickly," Warren said.
At the same time, the dearth of homes for sale is driving
up prices, making homeownership even more difficult for millennials who do find
a home to buy. Home values have hit an all-time high three months in a row.
Competition
Competition is the biggest factor driving up prices. The
Morrisons have lost out on two homes, getting outbid by $10 000 each time. Now
they are waiting to hear on a triplex three miles east of Inglewood.
"This last one my husband offered $10 000 over
asking, and I was like, 'Why did you do that?' " Keona said. "He's
like, 'We lost out on the other two by offering asking.' "
Several factors have contributed to the insufficient
inventory. The amount of time a homeowner stays in their home has grown from
six years to an all-time high of 10 years. Some homeowners aren't moving
because they owe more on their mortgage than their home is worth. Others would
like to sell but worry about finding their next home.
Most housing experts primarily blame low inventory on
home builders, who scaled way back after the recession. Housing starts have
slowly begun to rise, but construction remains well below healthy levels.
"The challenge is really adding inventory at the
entry-level space," said Robert Dietz, chief economist of the National
Association of Home Builders. "Can builders do that at a cost that meets
buyers' expectations, given rising land development costs, rising wages and
rising land costs?"
Some experts have suggested in recent years that
millennials may not want to own homes. But surveys have consistently disproved
that notion.
As bleak as home-buying prospects may seem for millennials,
Harvard's Herbert offers an optimistic perspective. Baby boomers who came of
age in the early 1980s similarly faced a negative climate because of a
double-dip recession and double-digit mortgage rates. But then homeownership
rates and housing prices boomed in the 1990s.
"That group started out on a slower trajectory, then
caught up," he said. "When you're young, you have some time to make
up for a slower start, depending on what happens with the broader
economy."