It’s been more than five years since housing prices bottomed out. Since then, the economy has strengthened, the labor market has improved and mortgage rates remain historically low. All of those factors should add up to a robust spring housing season, but that’s not what’s going on. Instead, realtors and builders are lamenting the low number of homes for sale.
There are a couple of factors that have created the current low inventory situation. The primary one is that after the bust, big investors gobbled up distressed properties and then converted them to rentals, removing those properties from the for-sale market. The other part is that Baby Boomers, who were previously expected to downsize, are opting to spend money to improve their homes and are staying put. Finally, builders have been slow to replace affordable homes on the market. All of these trends conspired to push down the overall inventory of all homes for sale to the lowest level on record at the end of last year.
Meanwhile, reports of the millennial generation’s fear/disdain for home purchases seem to be changing. According to the National Association of Realtors 2018 Home Buyer and Seller Generational Trends study, slightly more than a third of all home purchases were made by millennials over the past year (36 percent), “which kept them as the most active generation of buyers for the fifth consecutive year.”
But younger buyers, who witnessed the housing and financial crisis first-hand and are a bit less wooed by the “American Dream” of real estate, are not paying up to buy for the sake of buying. Rather than blow through their housing budgets, they are content to remain on the sidelines, while others are living at home, eventually transition straight to homeownership. Eighteen percent of millennial buyers in the survey said their family home was their previous living arrangement. That gibes with the Census Bureau’s finding that as of 2016, 32.1 percent of 18-34 year olds lived at their parents’ home – the highest share since records began in 1960.
Economist Matthew Pointon of Capital Economics notes, “cultural shifts go some way to explaining that (living with parents) trend. The age at which Americans get married and have children has been steadily rising since the 1960s. In and of itself that doesn’t necessarily mean young people will delay forming a household – you can still move out without having a spouse. But it is more expensive to live on your own. American’s may therefore be delaying moving out until they have saved enough for a home deposit, or are earning enough to make renting on their own a possibility.”
If you are looking to make the plunge, check out Ilyce Glink’s fourth edition of 100 Questions Every First-Time Home Buyer Should Ask. When I interviewed her for my Better Off podcast, these were just a few of Glink’s favorites:
- What can you afford? This will require you to run the numbers to understand whether home ownership might preclude you from addressing other important financial issues in your life.
- What do you want versus what do you need? Is the school system the number one priority or is walk to the station? Be brutally honest!
- How do you decide what to offer on a house? Should you low-ball a house that’s been on the market for a while? Do you need to make a full priced offer in a hot market?
- What exactly does the closing process look like? Are there issues that arise during the inspection that are potential deal-killers? Can you negotiate after contracts are signed? When should you walk away?