The Impact Millennials Have on the Housing Shortage

Millennial Housing Fever

What is driving the current hot housing boom? Formation of new families, growing income & wealth, shrinking debt and relatively low interest rates. It’s a millennial boom cycle.

Millennial Debt

Born from 1980 to 1995, millennials range from 26 to 41 years old, and represent 22% of the U.S. population, or 72.8 million people. They also account for a sizable portion (36%) of the workforce. They are accumulating savings to pay down student loans and other obligations, a pivotal hurdle to homeownership. Student-loan forgiveness and stimulus checks also helped cut debt and provide money for down payments. From November 2020 to April 2021, 3,458 applicants received loan discharges from the Public Service Loan Forgiveness program. The total forgiven was $583 million. And people 25 to 39 years old received more than $380 million in federal stimulus, starting in March 2020. This group used 49% of the money for goods and services, 33% for paying down debt, and 18% for savings and investments, probably including homes.

Millennial Wealth

A 2021 survey by Charles Schwab revealed that the median age of people who began investing during the pandemic was 35, compared with 48 for those who began doing so prepandemic. Millennials make up 51% of new pandemic-era investors.

This cohort is forming households, marrying, and having children, all of which requires space. The number of households headed by adults 30-to-44 years old jumped by 1.3 million during the pandemic. Married couples 31 to 40 were more likely than any other age group to purchase homes, according to a 2021 study from the National Association of Realtors. Also, the largest group of unmarried couples who purchased homes were adults aged 22 to 30. The same survey revealed that millennials 31-to-40 years old were the most likely (61%) to have at least one child under 18 at home. Low interest rates are also facilitating millennials’ demand for homes. The share of millennials purchasing homes was on the rise over the 2015 to 2019 period. The pandemic only supercharged this trend. Homeownership surged for those under 44 years of age in 2020, as Federal Reserve rate cuts pushed mortgage rates to historic lows. Millennials accounted for the largest share of homebuyers (37%) during the last 12 months.

Millennial Income

Millennials are approaching peak earning years—ages 45 to 54—a critical time for financing a home. The median annual income for this group was $77,800 in 2019. The oldest millennials are not quite there yet, but even for the group of Americans ages 34 to 44, median annual income was already $74,300 in 2019, suggesting that millennials have the earning power necessary for homeownership. Over the next couple of decades, a quarter of the U.S. population is going to reach peak earning years, fueling continued housing demand—especially for inexpensive starter homes, which nationally had a beginning price of $304,200 in the second quarter of 2021.

Millennial Momentum

Look for these trends to continue for at least the next few years tempered maybe by expanded new construction and any potential economic downturns although maybe not at the blistering pace of appreciation (14%+) during 2021. Prepare for continued multiple offers by consulting with your Realtor and mortgage professional to put you in the best position to submit a winning offer. (Dana Peterson)