Millennials might finally be ready to buy houses - but it's causing home prices to rise and creating a vicious cycle for a generation that's already financially behind
- More millennials are looking at buying houses, but it's causing home prices to rise, reported Diana Olick for CNBC, citing a new CoreLogic report.
- There's already a limited supply of starter homes on the market, and this spike in demand is exacerbating the problem.
- It's a vicious cycle for millennials, many of whom have delayed homeownership because they can't afford to buy in the first place.
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Millennials might finally be ready to buy homes - and it's creating a problem.
Older millennials are aspiring to be homeowners, but the increased demand is causing home prices to shoot up, reported Diana Olick for CNBC.
Home prices increased by 3.6% over the past year, she wrote, citing a new CoreLogic report, which predicts a 5.4% price jump in 2020. CoreLogic's chief economist Frank Nothaft told Olick that home sales also rose over the past year thanks to increased family income and lower mortgage rates, which brought older millennials back to the real-estate market.
The news comes a month after LendEDU published a report that found more than half of millennials are homeowners. However, a follow-up to that report revealed that for those who don't own homes, tight budgets, lack of savings, and high debt levels are preventing them from buying.
Frank Martell, president and CEO of CoreLogic, told Olick that more millennials are showing interest in buying homes. "But, with so few homes available for sale, the imbalance has created an affordability crisis that is getting worse every day," he said. "Demand exceeds supply and we're unsure of when the two will balance out."
There's no way around it: Starter homes are scarce.
Millennials buying their first home today are likely to pay 39% more than their parents did 40 years ago, according to Student Loan Hero. And a report by SmartAsset found that in some cities, the median home outweighed the median income by so much that it could take nearly a decade to save for a 20% down payment. As a result, millennials have been renting longer and buying later.
But now that some older millennials are ready to retire from the renting life, they're spawning an increased demand for homes, and it's exacerbating the already-limited availability.
The US housing market is currently a seller's market, and it's likely to continue throughout the second half of 2019, experts told Aly J. Yale for Forbes. A seller's market causes home prices to shoot up, leaving minimal inventory at the middle and low ends, Spencer Rascoff, Zillow's CEO, previously told Business Insider. But there are other factors driving the shortage, too: rising construction costs, restrictive zoning rules, and changing consumer desires, reported Ben Casselman and Conor Dougherty for The New York Times.
Real-estate investors are only making the problem worse: In 2018, they bought roughly 20% of US starter homes, Casselman and Dougherty reported. Some investors flip the houses, others rent the houses out, and some resell the houses when they appreciate, which could take weeks or years, they wrote.
All of these factors spell out tough competition for millennials, who are losing territory in the battleground of starter homes - which most of them already can't afford.
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