Construction, Home Ownership and Millennials

//Construction, Home Ownership and Millennials

Construction, Home Ownership and Millennials

The lack of supply of available houses has led to the real estate market to be inventory constrained. Inventory in California is around a four month supply. Normal for the market is between 6 and 7 month supply. Nevada County is lower at around a 3.3 month supply. Coupled with higher demand, this raises values, sale prices, and rental rates. It increases the competition for available housing.

The Economists at the California Association of Realtors estimate that there is an average of 165,000 households forming on a yearly basis. Reviewing construction building permits from 1980 to 2015 only 13 years did builders hit or exceed 165,000. In 22 of the years, builders did not meet this goal. More importantly, multi-family units were a good portion of the construction boom from 1983-1990. In the next construction boom 2002-2006 there fewer builds than the 80’s and a much lower percentage of multi-family units to single family homes. During the past 35 years, construction of both types of housing dropped to its lowest level on the chart in the years 2008-2012. 2014-15 has seen a decent rise in new construction with a more favorable balance of single family residences and multi-family units. The prediction is for the production of 124,600 units in 2016…well below the 165,000 households forming in that year. Since 1980, we have been missing 100,000 units annually to put into the housing pipeline.

2015 marked the lowest level of home ownership since World War II. In the United Sates, it is down to 63% of households are home owners. In California it has plummeted to 54%. Certainly the Great Recession had a lot to do with folks losing their homes and investors scooping up the REOs by the bushel. Today boomerang buyers are coming back into the market. They have tasted home ownership and know how good it is. They have healed their credit and obtained steady, higher paying jobs. But inventory is low and they don’t have a lot of choices.

Millennial Student Loan Debt

Millennial Student Loan Debt

Millennials (18-35 years of age) have their own unique set of home affordability issues. Last year saw the student loan debt issue come into focus. From 2004-2013 we saw student loan debt TRIPLE in size. This exponential growth in student loan debt continues today. First-time home buyers who have a loan debt of $60,000 have a barrier to home ownership. There are a good number of students graduating with a $100,000 student loan debt. Even with good-paying jobs and stock options, these student loans are difficult to pay off in a few years while trying to save for a down payment. Postponing the purchase 5-10 years adds more financial burden on first-time buyers. Typically, the energy to quickly solve this dilemma comes from forming a household or increasing the members of a household (making room for baby). Millennials are increasingly benefiting from help from their family or tight social network to come up with the down payment and closing costs. They usually have a relatively easy time to qualify for the purchase money loan especially if based upon two incomes. Finally, with low inventory present, they may be in competition with all-cash buyers who have a distinct advantage eliminating the loan as a contract contingency.

By | 2018-06-16T20:26:54+00:00 January 1st, 2016|Real Estate|0 Comments