Millennials key to stronger housing recovery
Cambridge, Mass. – June 27, 2014 – The U.S. housing recovery should regain its footing, but it also faces a number of challenges, concludes The State of the Nation's Housing report released by the Joint Center for Housing Studies of Harvard University.
Tight credit, still elevated unemployment and mounting student loan debt are moderating growth and keeping millennials and other first-time homebuyers out of the market.
"The housing recovery is following the path of the broader (economic recovery)," says Chris Herbert, research director at the Joint Center for Housing Studies. "As long as the economy remains on the path of slow but steady improvement, housing should follow suit."
Although the housing industry saw notable increases in construction, home prices and sales in 2013, household growth has yet to fully recover.
Millennials: Untapped potential
Young Americans, saddled with higher-than-ever student loan debt and falling incomes, continue to live with their parents – some 2.1 million more adults in their 20s last year – and student loan balances increased by $114 billion.
Still, given the sheer volume of young adults coming of age, the number of households in their 30s should increase by 2.7 million over the coming decade, which should boost demand for new housing.
"Ultimately, the large millennial generation will make their presence felt in the owner-occupied market," says Daniel McCue, research manager of the Joint Center, "just as they already have in the rental market, where demand is strong, rents are rising, construction is robust, and property values increased by double digits for the fourth consecutive year in 2013."
Will millennials become the next wave of homebuyers? The report cites two facts that could make it happen: The economy needs to grow to the point where young adult incomes start to rise. In addition, millennials need to qualify for a mortgage, which depends on GSE reform (changes to Fannie Mae and Freddie Mac, which buy mortgages from banks) and whether that makes it more difficult to qualify for a loan.
Millennials may also have pent-up demand for housing. From 2004 to 2013, the homeownership rate for 25-34 year olds was down nearly 8 percentage points; and for 35-44 year olds, it was down 9 percentage points.
By 2025, according to the report, minorities will make up 36 percent of all U.S. households and 46 percent of adults aged 25–34. This group will account for nearly half the typical first-time homebuyer market and 76 percent of all household growth, both owning and renting.
According to the report highlights, the white share of first-time homeowners fell from 86 percent to just 77 percent between 1993 and 2013; the Hispanic share climbed from 4 percent to 9 percent; and the Asian/other share increased from 2 percent to 6 percent.
The report and an interactive map highlight the ongoing affordability challenge facing the U.S. as cost burdens remain near record levels, with over 35 percent of Americans spending more than 30 percent of their income for housing. The situation is particularly grim for renters, where 50 percent are "cost burdened" and 28 percent are "severely cost burdened."
The Joint Center for Housing Studies of Harvard University offers extensive information on its website, including a closer analysis of housing markets, demographic drivers, homebuyers, rental housing, current market challenges and more.
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