How Millennials Are Impacting the Housing Market

Young Adults May Provide Housing Prices With a Boost

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It seems that every generation has its own opinions about the generations that precede and succeed it. Millennials, those born between 1981 and 1996, according to Pew Research, have earned a substantial amount of commentary and criticism, particularly with regard to their financial habits and attitudes toward money. One of the latest critiques of the millennial generation is that they're responsible for a slowdown in the growth of home values.

According to a recent Zillow analysis, 21.9% of millennials live at home with their parents, versus buying homes of their own. In terms of hard numbers, that's approximately 14 million young adults. While that type of living situation may not be ideal for every millennial, for many it's become a necessary choice for coping with stagnating wages and crippling student loan debt.

There is some good news, however. Millennials may soon be pushing housing forward as more first-time buyers enter the market.

What Influences Home Values and Housing Market Trends

The housing market is heavily driven by household formation. The more households we create, the more upward pressure is exerted on housing prices. When millennials begin moving out of their parents' homes and into the home-buying landscape, that's generally a good thing for home prices and home values.

Through the first half of 2019, the housing market has been largely in favor of sellers, with home prices rising. Among the primary factors influencing the market are:

  • Consumer Confidence: This indicator measures how confident consumers are in their buying power and the economy overall.
  • Housing: Specifically, this metric measures how home values and home prices move in tandem with one another.
  • Interest Rates: Interest rate policy has been closely watched as consumers and economists attempt to decide which way the Federal Reserve will move next.

If the housing industry can tap the home-buying potential of millennials that could bolster the market. The question is whether millennials will be financially able and ready to move out of their parents' homes and purchase a home of their own.

Why Millennials Are Slow to Leave the Nest

One explanation for this phenomenon is purely economic — jobs, or the lack thereof. Since the Great Recession job growth for non-college educated young adults has stagnated, alongside wages. Many millennials struggle to find a career path and those that do may continue to struggle with earning a livable wage.

There's also a sociological reason for a failure to launch. Young adults are slower to commit to romantic relationships and much slower to get married than earlier generations. Just 26 percent of 18-to-33-year-olds are married. By comparison, 36 percent of Gen Xers, 48 percent of Baby Boomers and 65 percent of the Boomers’ parents’ were married during that same period of life.

But millennials at least want to buy a home of their own, if they can find one that’s affordable and suits their lifestyle. In fact, millennials accounted for the largest share of mortgage originations in 2018, according to Realtor.com. Those that have yet to buy may be challenged, however, to find affordable properties as home prices in many urban and suburban markets across the U.S. soar.

Housing Trends: What's Next for the Market?

The signs suggest that we may be on the front edge of a housing boom powered by millennials. If the economy continues its steady upward climb, and we build more homes that attract first-time buyers, millennials will move out of the basement and into the fore of the housing market.

At the same time, home buyers and sellers should also keep an eye out for potential impacts from these emerging trends:

  • Smaller cities may begin to outpace larger ones for growth in home sales.
  • Bidding wars may ease as home inventory increases.
  • Mortgage rates may remain low or drop further if the Fed initiates a decrease in the federal funds rate.
  • While the pace may slow down compared to previous years, home prices should continue to rise.