Only a few months into the year 2020, we were faced with an unprecedented event that shook the lives of those around the globe. COVID-19 has been said to be the worst pandemic in US history in the last 100 years. While so many industries were fighting to survive the devastating effects COVID-19 had on their businesses, it came as a shock that the housing market began to boom. How then, in an uncertain pandemic-ridden economy, when millions of individuals were losing their jobs, did the average price of the American home skyrocket to the highest it has ever been? One simple answer: Millennials.
In 2021, Millennials aged into their prime homebuying years of 26-35. Combined with record-low mortgage rates in the US, a surge in demand was created increasing the number of mortgage applications for new home purchases by 33% compared to a year ago (Mortgage Bankers Association). Higher demand, however, comes with a higher price. With such a large uptick in demand, sellers have had most of the control over the market. This inflated the cost of buying a home, causing some of our trusty millennials to be priced out. Some may see this pattern in home sales to be reminiscent of 2006, just before the “bubble” burst and crashed by 60%. However, Nicole Friedman, US Housing writer for The Wall Street Journal, believes that due to stricter mortgages and higher down payments, the market is being better supported than it was in 2006 (Pandemic Ignited a Housing Boom – but it’s Different From the Last One). A stronger job market, stricter lending standards, and more options for struggling homebuyers are also indications that the market will remain strong.
Although business has somewhat returned to normal since 2020 and COVID-19 regulations have begun to ease, the housing demand has not seemed to even out as we approach the close of 2021. Will this discourage future Millennials from maintaining their impact on the housing market? The experts do not think so. Dana M. Peterson explains the Millennium impact in her recent Barron article, that in addition to low-interest rates; shrinking debt, growing families, and expanding wealth all contribute to the millennial housing phenomenon. Peterson also states, “This is no flash in the pan: Millennials will probably stoke housing demand for years (Millennials Will Drive Home Prices Up for Years to Come).” While the rise in home prices may not be as dramatic as it was over the course of last year, the costs to purchase a home will still increase in 2022. Mortgage rates will also rise, but not by much. According to Fannie Mae’s most recent forecast, we can expect to see mortgage rates rise to about 3.3% by next year, and 3.5% by 2023, which is still historically low (Fannie Mae Research and Insights).
Another factor to consider is the increase in rental costs for apartments and condominiums. With estimated rent forecasted to grow by 7.1% over the next year (realtor.com), potential homebuyers are taking advantage of the current interest rates and choosing to build equity, despite high home prices, rather than renting.
45 million millennials will reach prime homebuying years in 2022. Combine that with low-interest rates, an improving economy and an increase in rental costs, millennials are feeling more empowered now than ever to purchase a home and remain the driving force behind the housing market.
Contact sales@accutitle.com to learn about AccuTitle services that can serve as best practices when working with the millennial demographic.
