Millennials Key To U.S. House Price Growth
According to official statistics, millennials in their 20s and 30s are now the leading driver when it comes to US house price growth. Even though US homeownership has now fallen back to levels not seen since 1960s, there are hopes that the new driving force in the US housing market will soon gather momentum. This is a generation which has seen many parents struggle in the aftermath of the 2008 sub-prime mortgage crash and are understandably a little more cautious.
Rental market
Over the last 20 years we saw a significant increase in the number of homeowners in the US although the 2008 mortgage crisis brought this to an abrupt end for many. As a consequence, many people are now showing a greater preference for the rental market at least for the short to medium term. This has led to an increase in the number of private landlord units available in the US, creating demand for property which has pushed prices further away from first-time buys in the short term.
Student Loan Debt
We know that total student loan debt in the US is now in excess of $1.2 trillion with around 63% of young adults owing in excess of $10,000. While the US employment market is fairly buoyant this has not been reflected in wage inflation which tends to lag economic performance. Recent data from Freddie Mac perfectly illustrates this point with house prices up by an inflation adjusted 29% since 2000 but take-home income up by just 1% in real terms. A tightening of US mortgage regulations also made it more difficult for some potential first-time buyers to secure finance.
Changing living patterns
though the US employment market has been fairly buoyant of late the younger adult age group has not benefited to the same extent as others. As a consequence, we know that around 15% of adults in the age group 25 to 34 are still living with their parents, while they save for their own home. This figure was just 10% back in 2000, suggesting that many people today will be getting married in later life at which point they will look to acquire their dream property.
Mobile employment
The ongoing increase in US interest rates was introduced as a means to control an economy which has been buoyant of late. We will likely see a tightening of investment in businesses as interest rates tick higher although more people are now prepared to travel for relatively short to medium term employment contracts. This has also increased demand for short-term rental accommodation with many people unsure where their long-term employment future lies.
Mortgage providers adapting to the market
Mortgage providers today are adapting to a changing sector with new entrants to the housing market taking a more cautious stance. It is wrong to suggest that millennials are not pursuing their dream homes but, compared to their parents, homeownership numbers are down. The ongoing strategy of increasing US base rates will slow economic growth while at the same time wage inflation should increase due to the lag factor. This should improve the affordability factor for first-time buyers and once the economy is on a more even keel many millennials will start planning for the future.
Despite the fact that the ongoing trade war with China (and other trading partners) has caught the headlines, the Federal Reserve would appear to have discounted this issue. Interest rates started to rise back in 2016 and are likely to continue their upward trend for at least the next two years. This should lead to more stable economic growth, improved wage inflation and a more secure environment in which more millennials might finally consider the purchase of their first family home.
ABOUT THE AUTHOR:
MARK BENSON - BLOGGER AT UPWARD HOME LOANS