Will First-Time Homebuyers Be the Biggest Surprise in 2015?
The housing market has an open vacancy for first-time buyers. Despite a slowly improving labor market and low interest rates, the share of first-time home buyers declined this year to its lowest point in almost three decades. Young adults face several barriers to homeownership, but they are expected to make their presence known in 2015.
First-time home buyers typically account for 40% of purchases, according to data from the National Association of Realtors that dates back to 1981. However, the financial crisis and bifurcated recovery have impacted this long-term average. In 2014, the share of first-time buyers declined 5 percentage points year-over-year to only 33%, representing the lowest share since 1987. More than five years after the recession technically ended, affordability issues and credit conditions are still a hindrance.
“Rising rents and repaying student loan debt makes saving for a downpayment more difficult, especially for young adults who’ve experienced limited job prospects and flat wage growth since entering the workforce,” explained Lawrence Yun, NAR chief economist, in a press release. “Adding more bumps in the road, is that those finally in a position to buy have had to overcome low inventory levels in their price range, competition from investors, tight credit conditions, and high mortgage insurance premiums.”
Some young adults are forgoing their own households and becoming a member of an existing household. A new survey from Money Rates finds that nearly a third of parents have allowed an adult child to live with them for an extended period, while the same number of parents say their kids will never be too old to live at home. Between 1980 and 2012, the number of Americans in multigenerational households doubled. Zillow estimates that 5.4 million households are currently “hidden inside” of existing households.
Although millions of first-time homebuyers may stay out of the market for years to come, Zillow predicts that 2015 will be a breakout year. The firm estimates that the millennial generation will overtake Generation X as the biggest group of home buyers in the United States. Cities such as Pittsburgh, Hartford, Chicago, Las Vegas, and Atlanta are expected to lead the way.
“Contrary to popular opinion, millennials (buyers aged 23 to 34) actually do want to buy homes. And current millennial renters are more optimistic than other generations that they will eventually be able to afford a home,” explains Zillow. “Millennials have been delaying getting married and having children, the two main drivers for first-time home purchases. But life catches up to everyone, and as this group ages, they will begin to settle down and start buying homes en masse. Being the largest generation in the country, millennials also have numbers on their side.”
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