Millennials Facing Their Second Housing Crisis

Key Highlights

• Millennials watched parents struggle with housing crisis in 2008
• Millennials now facing different kind of housing crisis – severe shortage of homes

Millennials Facing Latest Chapter in String of Bad Economic Luck

Many Millennials watched and even experienced their families lose their homes during the housing crisis of 2008.  Many of those same Millennials entered the work force in the middle of a recession instead of being able to begin their working lives with starry eyes and high hopes.

Now, many of those Millennials who have pulled themselves up by their bootstraps and are ready to buy their first home are facing their third kind of economic bad news in the midst of a severe housing shortage.

America is simply running out of houses to sell and record-breaking home prices only exacerbate the problem.

On top of Jeffries saying the US is short -2.5M homes and Freddie Mac estimating the housing shortage being -3.8M, a recent report from Black Knight indicates there are -40% fewer homes on the for-sale market this year compared to last year.

“Big Three” Factors Contributing to Housing Shortage

The “big three” factors contributing to this current housing crisis are new home builders severely underbuilding new homes over the past dozen years; a severe lumber shortage compounded with skyrocketing lumber prices; and the COVID pandemic.

These “big three” factors coincide almost perfectly with Millennials reaching their peak age, 31-32 according to CoreLogic and National Association of REALTORS® (NAR), for first-time homeownership.

Of course, increased homeownership demand from Millennials is only shrinking housing inventory to even tighter limits.

Affordability Challenges

Combining the “big three” factors (underbuilding, lumber shortage, and COVID recession/”outward” migration patterns) with the residual effects of the Great Recession (staggering student debt, much tighter lending practices, and home prices increasing +18% y/y to a record-breaking high of $353,000 in March), Millennials still managed to lead all generations in home-buying last year, according to ApartmentList’s homeownership report.

Now factor in the realities of houses being snatched up in less than a month, all-cash sales increasing from 18% to 23% in 2021, and more first-time buyers putting down a full 20% down payment, according to NAR.

In such a tight inventory environment with a current average of five offers on a house (compared with two in both 2019 and 2020), sellers like seeing the financial capability of a 20% down payment.

Avenue for Building Wealth via Homeownership Being Curtailed

Owning a home has been a traditional way for most Americans to build wealth via home equity.  Now, even wealthier Millennials able to scrape together savings to buy a home are facing a housing market without enough houses.

Gay Cororaton, director of NAR’s housing and commercial research, said that owning a home is “…going to be more difficult for Millenials.”

According to Daryl Fairweather, chief economist with Redfin, “All the shortages (skilled labor shortages, lumber shortages, shipping shortages) right now are definitely not helping us figure our way out of the hole, but even without those challenges, the hole is humungous.  So it’s going to take decades of building lots and lots of homes.”

Thanks to Business Insider.

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