One possible explanation for the sharp decrease in housing stock throughout the U.S.? Demographics.
Some analysts believe a wave of Millennial homebuyers are at least partially responsible for the severe housing crunch that has sent U.S. home prices skyrocketing and launched a seemingly endless frenzy in which buyers are competing in a cutthroat market for a dwindling supply of homes.
Data indicate that Millennials form the largest share of current homebuyers: Older and younger members of that group make up nearly 40 percent of all homebuyers today, according to data from the National Association of Retailers.
Millennials still make up the smallest share of U.S. homeowner demographics, but data from Apartment List show that, among major U.S. age groups, their rate of homeownership has increased the most quickly over the past five years.
Simple demographic realities—coupled with a host of other economic and industrial factors—could implicate Millennials as one of the chief driving forces of the current shortage, albeit through no fault of their own, of course.
“We’ve got something like 85 to 90 million millennials that are now in the home-buying market that weren’t [in the market] 10, 12 years ago,” Builders FirstSource President Dave Flitman told Yahoo Finance earlier this year. “And that’s creating a lot of underlying demand.”
Increased demand is good news for any industry. It sends a signal for producers to generate more of a product, in this case housing. The SARS-Cov-2 pandemic, however, appears to have kicked the whole process into overdrive: The crisis has led to a flurry of both house hunting and home repairs/renovations. In a perverse way, unfortunately, the latter has driven up the cost of housing materials which further exacerbated the housing shortage.
Complicating matters even more, the pandemic has upended the traditional office-based model of 21st century employment in the U.S., pushing many workers into at least part-time remote work.
Data from Realtor.com show that nearly half of employees who have worked remotely during the pandemic have been given the option to continue to do so, and that Millennials enjoyed “the highest share of flexible employers” among all age cohorts.
That development has spurred house hunting across the country into markets that might have otherwise remained low-key. “Throughout the last year we have seen homebuyers across the country, empowered by the new found ability to work remotely, moving farther and farther from crowded urban downtowns in search of more space, higher quality of life, and a lower cost of living,” Realtor economist George Raitu writes. (Data have shown that “out-of-town” buyers can drive up the cost of local housing.)
Raitu noted further that “the millennial generation is coming into its own of home buying age, and contrary to a decade’s worth of typecasting as the ‘renter generation,’ it is broadly embracing homeownership.”
There are signs that the housing market is cooling off, particularly as more and more buyers pull back from the red-hot seller’s economy and the stressful house-hunting and bidding wars that have come with it.
Still, trends indicate that conditions may remain favorable for sellers for at least the short-term, particularly as more and more Millennials reach homebuying age and enter the market in search of a good deal.