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May 13, 2019
Doctors: Housing slowdown likely to pass as second wave of Millennials enter housing market
Doctors: Although the housing market cool down has seen home price growth slow and inventory dwindle, recent data from Zillow suggests an oncoming wave of first-time buyers could turn things around.
According to Zillow’s analysis, an extra 3.11 million people at prime first-time home-buying age are projected to enter the market by 2028.
“From 2019 through 2028, 44.9 million people will turn 34, the median age of current first-time home buyers,” Zillow writes. “That’s an increase of 7.4% from the past 10 years, when 41.8 million people passed that threshold.”
While it’s not certain if each of these people will purchase a home, Zillow claims the sheer heft of their numbers will impact the market.
“It’s a comforting idea in a quickly cooling housing market that there is significant structural, long-term demand moving into homebuying,” Zillow writes. “This increases our confidence that the slowdown will correct itself before too long.”
According to Zillow’s data, this demand will predominately come from America’s Millennial generation, which accounts for more than one-quarter of the U.S. population.
“Millennials hold such fascination partly because they are a massive generation, and that generational heft has yet to fully hit the home-buying market,” Zillow writes. “The largest 3-year cohort in the U.S. is only 24 to 26 years old, yet the median age of the first-time home buyer is 34.”
In order to measure this generation’s impact on housing, Zillow compared the size of those aged 35 to 44 to those aged 24 to 33, labeling the younger generation as “up-and-coming” first- time buyers.
According to Zillow’s data, the presence of “up-and-coming” first-time buyers will not only drive home price growth but rent prices as well.
“Younger generations’ persistence in the rental market will continue to put pressure on those markets despite all the new apartment building,” Zillow writes. “This is a huge generation and the rate of multifamily building, as aggressive as it seems for anyone watching the skylines of urban areas, does not make up for years’ worth of shortfall when more capital was being directed to single-family building during the housing bubble.”
Looking Ahead: Upcoming Key Market Dates
Home Prices Grow by 3.7% in March, Expected to Pick Up
Home price growth continued to slow on an annual basis in March. The CoreLogic Home Price Index (HPI) shows home prices increased from the previous March by 3.7 percent. The annual growth rates in January and February were 4.4 percent and 4.0 percent respectively.
On a month-over-month basis prices grew by 1.0 percent, the same as in January. Prices had spiked by 0.4 percent in February.
The company’s deputy chief economist Ralph McLaughlin said, “The U.S. housing market continues to cool, primarily due to some of our priciest markets moving into frigid waters. But the broader market looks more temperate as supply and demand come into balance. With mortgage rates flat and inventory picking up, we expect more buyers to take advantage of easing housing market headwinds.”
Price increases continued in every state on an annual basis except North Dakota, with the largest gains in Idaho, up 10.5 percent, Maine (9.1 percent) and Utah (7.8 percent). Nevada leads again among metropolitan areas with an annual gain of 8.0 percent.
The company does not expect the shrinking appreciation rate to last. Its HPI forecast for March 2020 anticipates an annual increase of 4.8 percent. It also expects acceleration as the spring market begins, with a gain of 0.3 percent from March 2018 to April.
The CoreLogic HPI Forecast is a projection of home prices using the CoreLogic HPI and other economic variables. Values are derived from state-level forecasts by weighting indices according to the number of owner-occupied households for each state.
Respondents to CoreLogic’s 1st Quarter Consumer Housing Sentiment Study indicated that high home prices have an impact on rental prices as well. Nearly 76% of renters and buyers in high-priced markets agreed housing prices in these markets appeared to be driving rental rates up.
Frank Martell, President and CEO of Corelogic says the cost of housing, whether buying or renting, in expensive markets puts a significant strain on most consumers. “Nearly half of survey respondents – 44% of renters – cited the cost to rent in high-priced housing markets as the number one barrier to entry into homeownership. This is potentially forcing renters to wait longer to have the necessary down payment in these communities,” he said.
CoreLogic says that 35 percent of the country’s 100 largest metropolitan areas based on housing stock, were overvalued in March. The company’s Market Conditions Indicators (MCI) categorize home prices in individual markets as undervalued, at value or overvalued by comparing home prices to their long-run, sustainable levels as supported by local market fundamentals such as disposable income. An overvalued housing market as one in which home prices are at least 10 percent higher than the long-term, sustainable level, while an undervalued housing market is one in which home prices are at least 10 percent lower. Twenty-six percent of the markets were undervalued, and 39 percent were at value. Within the top 50 markets based on housing stock, 40 percent were overvalued, 16 percent were undervalued, and 39 percent were at value.
Source: Mortgage News Daily