Millennials Impact on Housing Trends

Millennials born between 1981 and 1996 have faced challenging circumstances in the housing market. The financial crisis of 2007–2008 disrupted the market just as older millennials were entering adulthood. When younger millennials were ready to buy homes, prices surged to unaffordable levels due to high demand and low inventory. According to experts, despite these obstacles, many millennials decided to enter the housing market, causing significant shifts.

The demand from millennials, coupled with that of baby boomers, has kept housing prices high. Millennials’ delayed household formation due to factors like high living costs has led to unprecedented demand for housing, contributing to the ongoing rise in prices. Additionally, baby boomers, who are also driving up demand, plan to stay in their homes longer, further limiting the housing supply. Consequently, millennials have had to accept higher home prices than previous generations, leading to delayed entry into homeownership and reshaping the housing market dynamics.

First American Economist Optimistic for 2024 Price Growth

First American Financial Corp.’s latest data indicates a shift in the housing market, suggesting that the peak of national home price appreciation may have passed. Although January marked the 10th consecutive month of price increases, Chief Economist Mark Fleming believes the rate of gains is slowing. He attributes this moderation to a decline in the annualized pace of home price appreciation, fueled by buyers taking advantage of lower mortgage rates. Despite concerns about potential price declines, tight housing supply due to rate-locked sellers has sustained upward pressure on prices. Fleming anticipates that increased optimism about falling mortgage rates in 2024 could prompt more homeowners to sell, thereby boosting supply and improving affordability for buyers.

While annual price growth in January remained strong at 7.2%, down slightly from December’s peak, Fleming observes a deceleration in home price gains across major metropolitan areas. Although all 30 core-based statistical areas (CBSAs) tracked by First American experienced year-over-year price increases, many have already surpassed their price peaks. Notably, 23 of the top 30 markets have prices below their pre-pandemic peaks, with some experiencing significant declines. Despite recent turbulence, Fleming remains optimistic that the housing market may be approaching a balanced equilibrium, where price appreciation is neither too hot nor too cold, potentially reaching a ‘just right’ point in 2024.

Expectations for Modest Housing Market Growth Amid Affordability Issues

The Fannie Mae Economic and Strategic Research (ESR) Group projects a modest increase in both existing home sales and new single-family housing starting in 2024. Anticipating a five percent rise in total home sales to 5.00 million units, slightly higher than previous forecasts, the group expects the 30-year fixed mortgage rate to decrease to 5.9% by the year’s end, although somewhat higher than earlier predictions. Despite lingering concerns about housing affordability, there are positive indicators due to rising home prices. The loosening supply of existing homes for sale offers hope for potential buyers, coupled with increasing optimism among households anticipating a decline in mortgage rates, potentially encouraging more buyers to enter the market.

While the ESR Group’s macroeconomic growth outlook for 2024 is influenced by strong Q4 2023 GDP reports and favorable population and immigration trends, economic expansion is expected to slow compared to 2023. Factors such as a persistently low savings rate and softness in the labor market contribute to this tempered growth. Despite the positive outlook, significant uncertainty remains regarding GDP sustainability, inflation decline, and monetary policy changes, with housing and economic relationships still out of balance post-pandemic. Fannie Mae’s Senior Vice President and Chief Economist, Doug Duncan, emphasizes the importance of monitoring economic growth, as unexpected increases could prolong higher mortgage rates, impacting housing dynamics.

Source:

Vaimberg, Ron. “Weekly Newsletter – January 6, 2023.” Ron Vaimberg International, Ron Vaimberg, 6 Jan. 2023, https://rvionline.thinkific.com/courses/take/rvi-weekly-newsletter/texts/41523497-weekly-newsletter-january-6-2023.