Cambridge, Mass.– Millennials and other first-time homebuyers face big hurdles in attempting to buy a house as the nation’s real estate market continues to improve, according to a new report by the Joint Center for Housing Studies of Harvard University.
Tight credit, still elevated unemployment, and mounting student loan debt among young Americans are moderating growth and keeping millennials and other first-time homebuyers out of the market, the State of the Nation’s Housing report says..
“The housing recovery is following the path of the broader economy,” says Chris Herbert, research director at the Joint Center for Housing Studies. “As long as the economy remains on the path of slow, but steady improvement, housing should follow suit.”
Although the housing industry saw notable increases in construction, home prices, and sales in 2013, household growth has yet to fully recover from the effects of the recession. Young Americans, saddled with higher-than-ever student loan debt and falling incomes, continue to live with their parents. Indeed, some 2.1 million more adults in their 20s lived with their parents last year, and student loan balances increased by $114 billion.
Still, given the sheer volume of young adults coming of age, the number of households in their 30s should increase by 2.7 million over the coming decade, which should boost demand for new housing. “Ultimately, the large millennial generation will make their presence felt in the owner-occupied market,” says Daniel McCue, research manager of the Joint Center, “just as they already have in the rental market, where demand is strong, rents are rising, construction is robust, and property values increased by double digits for the fourth consecutiveyear in 2013.”
One key to realizing the millennials’ potential in the housing market is for the economy to grow to the point where their incomes start to rise. Another important factor is how potential GSE reform will affect the cost and availability of mortgage credit for the next generation of homebuyers, which will be the most diverse in the nation’s history.
Meanwhile, home prices continued to rise, raising the bar on affordability.
“Although home prices have been rising steadily this past year, housing is still very affordable in historical terms,” said Tom O’Grady, CEO of Pro Teck Valuation Services of Waltham, Mass. “Most markets still have a way to go to reach their previous peak. With some modest improvement in employment and still historically low mortgage rates, housing as a whole is affordable. The real problem for many potential home buyers is other debt such as student loans for first time buyers and tight credit.”
By 2025, minorities will make up 36 percent of all US households and 46 percent of those aged 25–34, thus accounting for nearly half of the typical first-time homebuyer market.
Here’s a link to The State of the Nation’s Housing report released today by the Joint Center for Housing Studies of Harvard University.