Factors such as a slowed increasing of home prices bode well for millennials hoping to buy their first home
The selfie generation probably won’t be responsible for the housing market’s failure to relaunch, but they’re not yet providing the big lift many economists had hoped for following the housing collapse.
Two separate housing reports this week offer a few glimmers of hope about millennials, or young adults born after 1980. Most notably: Home affordability has improved – a plus for this group, given the employment strain they faced after having entered the working world during the worst financial crisis since the Great Depression.
“We should watch closely whether millennials are getting back to work. For millennials, having a job is key to forming households and becoming homeowners,” says Jed Kolko, chief economist at Trulia. “One of the most important measures of the housing market will come in this Friday’s jobs report, when we’ll see whether more young adults have gone back to work.”
The jobless rate for those ages 25 to 34 is 6.9 percent, while the overall national rate is 6.1 percent, according to the Labor Department's most recent figures. On Friday the department will release its monthly employment situation report, which includes an update to the jobless rate and figures on how many nonfarm payrolls U.S. businesses added in September, among other employment measures.
A report released Wednesday and authored by Kolko examines five barometers of housing data that have improved year over year. There's been a rise in existing home sales, slowed advancing in home prices, improved delinquency and foreclosure rates, a rebound in new home construction and better employment outcomes for young adults ages 25 to 34.
But those last two measures continue to drag, Kolko wrote, underscoring the hard time young adults continue to have when trying to buy a first home.
“In this recovery, young adult employment and construction are weak – so the virtuous cycle of housing and jobs isn’t looking quite so virtuous,” Kolko said in the report.
Other research shows that first-time homebuyers see owning a home as a good investment, but that financial strain is the No. 1 reason they don’t or can’t purchase one.
Homebuying, therefore, becomes more of a reality for many young adults as job prospects improve and as home prices stabilize, a report released Tuesday from mortgage giant Fannie Mae confirmed.
As a result of factors like worsened labor market conditions from the financial crisis and tightened mortgage lending standards, young adult household formation and homeownership rates fell sharply. The declines in both of those measures since 2006 translated to 1.5 million fewer young households and 2.4 million fewer young homeowners in 2013 than would have been the case if those measures had maintained their 2006 levels.
“The continued slide in household formation and homeownership among young adults suggests that more robust labor market improvements, among other factors, are needed for young Americans to get a stronger foothold in the housing market,” the Fannie Mae report said.
The jobless rate doubled between 2007 and 2010 for Americans between the ages of 25 to 34, and real median incomes fell by about 10 percent during the crisis. But the good news is that home affordability – as measured by the ratio of housing costs to income – has improved dramatically since 2000.
Nationally, home prices rose at a slower rate in July compared with June, according to an S&P/Case-Shiller Home Price Index report released Tuesday. The cooled pace of price appreciation, Sterne Agee Chief Economist Lindsey Piegza said, should help boost or at least stabilize home sales activity.
“Against the backdrop of minimal income gains, first-time homebuyers in particular are having an increasingly difficult time financing a home purchase,” Piegza wrote in a research note to clients.
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