Further evidence that the housing market is still broken: Even as home prices rise, first-time home buyers keep disappearing. In fact, first-timers now represent the smallest percentage of home buyers in three decades, according to a report issued Thursday by The National Association of Realtors.
How can prices rise while an incredibly important part of the market dries up? Well, that’s one reason we’re all going nuts, a phenomenon I’m covering in The Restless Project.
There’s plenty of external factors propping up prices — chiefly, low interest rates. But that is a stopgap, not a solution. Meanwhile, an entire generation of would-be homeowners and families stay on the sidelines in a kind of limbo — paying high rents, waiting to marry, waiting to have children. This is a poor way to run a society.
I’ve covered various reasons for this problem before. A huge element: The death of the starter home. Construction companies just don’t bother building small homes for young families any more. It’s go big or go rent.
That’s why, as I wrote for Credit.com this week, adults under 34 (millennials) are just as likely to live “at home” as to own a home. In fact, independent living is still on the decline, as most 30-somethings decide each year to live with their parents.
Mortgage broker and market expert Logan Mohtashami said he sees the impact of delayed household formation every day, but he’s optimistic that the issue is a one-time shift in the way young adults live.
“Everything is moved up a few years,” he said. “(Ages) 28-37 is the key mark for homebuying.” The 21-25-year-old age group is the largest demographic in America, he added. (Here’s a CIA World Factbook age pyramid).
Basically, the housing market will be stuck in neutral until today’s 25-year-olds turn into 30-year-olds, he thinks.
“They still need more time,” he said. “Years 2020-2024 will come bigger numbers.”
But plenty of other factors are at play here, too. The rise of the disposable worker means that portability is absolutely essential to 20-somethings, who might hold 3-4 jobs before age 30. That certainly doesn’t encourage home buying. (Portability is actually important to all workers now; that’ll be the subject of an upcoming Restless Project story).
Probably the biggest factor is recent experience. Once bitten, twice shy. Buying a home seemed like such a great idea in 2005. In 2015, it sounds kind of terrible. Those are both generalizations, but who could blame a young person for not wanting to risk their financial fortune so soon after the housing market broke so many hearts? Renting is a perfectly fine alternative for many people, and has even been described as the new American dream. At least, renting was sensible until the rent became too damn high.
How are you dealing with the rent / buy dillema?