A record number of millennials wanted to buy homes in 2020, but the real estate market can’t keep up.
So finds financial services company First American, which measures potential homeownership demand based on lifestyle, societal, and economic factors in what it calls its Homeownership Progress Index (HPRI). When potential homeownership demand exceeds the actual homeownership rate, it signifies that external forces are suppressing housebuying.
Its new report reveals that potential homeownership demand has surpassed the homeownership rate since 2010, following the aftermath of the Great
. But the difference between the two hit an all-time high during the pandemic. Demand rose from 68.8% the year prior to 70.21% in 2020, while the national homeownership rate grew from 64.7% to 66.7%.
Contrary to the popular narrative that millennials can’t afford to a buy a house because they spend too much money on avocado toast, there are more millennials trying to become homeowners than there are houses available.
Housing was largely an out-of-reach dream for millennials for years. Even before the pandemic, they were struggling to save for a down payment as they grappled with the fallout of the financial crisis and the burden of student debt.
But as the generation became more financially stable with age, its potential homeownership demand has increased by 3.5 percentage points year-over-year, per First American. That’s more than any other generation. The majority of millennials turned 30 in 2020 and the oldest turn 40 this year, signifying they’ve reached the peak age for first-time homeownership.
Not enough houses for homebuying millennials
America has been running out of houses amid a historic housing shortage. A lumber scarcity and the pandemic itself have only exacerbated the shrinking inventory, as has the wave of homebuying demand during a remote work era.
“We’ve been underbuilding for years,” Gay Cororaton, the director of housing and commercial research for the National Association of Realtors (NAR), told Insider at the end of April. She said the US had been about 6.5 million homes short since 2000, then facing a two-month supply of homes that should look more like a six-month supply. Because of this, she added, homeownership is “going to be more difficult for millennials.”
Daryl Fairweather, the chief economist at Redfin, added that there have been 20 times fewer homes built in the past decade than in any decade as far back as the 1960s. She said it’s not enough homes for millennials, who are the biggest generation, to buy.
The imbalance has propelled housing costs to several record highs, resulting in bidding wars nearly everywhere nationwide, with competing bidders throwing down all-cash bids and higher down payments. It’s become millennials’ second housing crisis during their adulthoods.
Skyrocketing prices have pushed homeownership out of reach for many millennials, despite some of their peers leading the housing recovery. While the wealthier cohort of the millennials may be better positioned to buy a home, even those who successfully managed to scrape together some savings are facing dwindling chances of homeownership.
But millennials will be driving the housing market for years to come. As Odeta Kushi, deputy chief economist at First American, wrote in the report, “While millennial homeownership has been delayed relative to their generational predecessors, millennials now have the greatest influence on the housing market and remain poised to fuel a ‘roaring 20s’ of homeownership demand.”
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