The latest jobs report from the U.S. Department of Labor shows employment among 25-to-34-year-olds reaching its highest level since the end of 2008. That news set off another round of industry speculation: Are millennials finally ready to buy their first home, or are predictions of a rebound in the first-time housing market a bit premature?
Experts and insiders don’t agree. Here’s why.
In December, Realtor magazine declared 2015 “the year of the first-time home buyer.” In making the prediction, the authors stated that “increases in employment opportunities will empower younger buyers to return to the market and fuel the continued housing recovery.”
In addition to an anticipated growth in jobs, the forecasters reasoned that “an increase in household formation” (i.e., getting married and starting families) would drive more first-time home buyers to the housing market.
They did acknowledge, however, that such an outcome had “a high dependency on financial qualifications.” And there’s the rub.
Several studies conducted last year found that millennials preferred home ownership to renting and that many expected to buy a home within the next 1-5 years. Using a similar logic as the Realtor forecasters, the real estate website Zillow predicts that more millennials will be in the market for a home in 2015 because “home values will increase by 2.5 percent while rents will grow around 3.5 percent.”
But wanting to buy and being able to buy are not the same thing. As has often been reported, many millennials are financially strapped by high student-loan debt, inadequate employment and stagnant wages. They are unable to meet home mortgage and down payment requirements even for modest homes, much less for the type of home they would prefer.
Some industry insiders are optimistic that recent changes may create new opportunities for first-time home buyers. Damian Maldonado, CEO and co-founder of national mortgage lender American Financing, and a contributor to MarketWatch.com, sees good things going forward.
Maldonado thinks the recent cut in the premium borrowers with FHA loans pay and the move by Freddie Mae and Freddie Mac to drop the down payment on some of their loans from 5 percent to 3 percent “can put homeownership in reach” for more younger buyers.
Citing an increase in savings and improving credit scores due to great employment stability, the Federal Savings Bank believes, “It’s only a matter of time before millennial home applications surge.”
More conservative forecasts — such as that by Doug Duncan, chief economist at Fannie Mae, speaking to CNN Money — are that large numbers of millennials purchasing homes is not likely for the next 3-4 years. Beside financial restraints, millennials are marrying and starting families later, and so are not under pressure to purchase a home.
Also, millennials have stuck with their current jobs and locations out of a need for security. But if the job market continues to improve, they may quickly become more mobile.
In the near term, activity is likely to be more localized. The National Association of Realtors and others are reporting increased activity in some parts of the country, such as Austin, Denver and Minneapolis, which have sizable younger populations and a more affordable housing market.
While a number of factors point to a potential increase in millennial home buyers, the important thing to keep in mind is that it will take not just one or two of those factors, but a number of them to make the market accessible to a majority of them. For now, whether the glass looks half-empty or half-full depends on which of those factors you focus.
About the Author
Michael J. Berens is a freelance researcher and writer with more than 30 years of experience in association communication and management. He can be reached at email@example.com.
This article was provide by Multibriefs.