As 2020 gets well underway, there are many forces to consider as to who will be making the majority of home purchases and sales. While conditions favor holding onto property and renting, many Baby Boomers are poised to move out of their homes and into more affordable and manageable abodes.
The issue is, however, that not enough Millennials may be able to afford to make the downpayment to own a home, despite being capable of making monthly mortgage payments. All the moving pieces currently in play present a future veiled in uncertainty.
What is the current average age of a home buyer?
In 2019, LendingTree.com surveyed the US’s 50 largest metropolitan areas and discovered that the average age of homeowners was 55 years old, with not a single metro area having an average of fewer than 50 years old. The primary culprits behind this state of affairs are that too many Millennials suffer from debt and poor credit. That doesn’t mean, however, that Millennials don’t want to buy.
Apartment List surveyed 6,400 Millennials renters for a study that revealed that 9 out of 10 participants would like to buy a home but only 4.9% thought that they could make such a purchase in the next year. Sensing that the Millennial outlook was discouraging, Apartment List crunched some numbers to find just how long it would take Millennials to save enough money to buy a home. What they discovered was that for ⅔ of Millennials it would be a 20-year wait to have enough saved for a mid-priced condo.
Apartment List also found that it was the size of the down payment, usually 20% of the home’s cost, that was keeping respondents from buying a home. Only 29% of those surveyed said that they couldn’t afford to make the monthly mortgage payments, which makes sense considering that mortgage payments are static rather than fluctuating.
It’s possible, then, that a mix of crowdfunding and contributions from family and friends may provide a needed boost to first-time homeowners. Additionally, the Federal Housing Administration (FHA), may be a source of financial assistance for first time homeowners. If your credit score is at least 580, then, as of 2019, then your down payment can be as low a 3.5%. If your credit score is between 500 and 579, then you can still get a loan if your down payment is 10%, which is considerably less than the 20% downpayment expected from most lenders.
What are other obstacles keeping Millennials from buying homes?
As reported by Forbes, many of the nation’s hottest markets simply don’t have enough affordable homes for interested buyers. Nonetheless, the rise of luxury housing in many popular areas has increased the median cost of rent, inspiring 23% of eventual Millennial homeowners to make their purchases. Another factor that may influence Millennials to buy is that Baby Boomers are amping up to sell upwards of 27% of all American homes between now and 2040, providing more opportunities for Millenials to move in.
Whether or not these homes are of interest to Millenials is a different question. As reported by CNBC, studies have shown that Millenials prefer “suburban downtowns”, which are the sort of walkable neighborhoods where one finds a mix of both residential and commercial properties. Seeing an opportunity, plenty of builders and town planners have been accommodating Millennials’ desires. The move makes sense considering that the largest Millenial age bracket, 4.8 million, is on the cusp of turning 30.
How will the housing shortage affect home buyers?
A big factor that may influence housing sales in 2020 is the ongoing housing searches. While it’s predicted that more Boomers will begin to sell their homes, many landlords will not. As observed by NerdWallet, in the wake of the 2008 financial crisis, many foreclosed homes were converted into rental units. In 2019, renter made up to 35% of all households, up nearly a third since 2005. That’s a lot of profit that landlords are unlikely to want to part with!
Low-interest rates are also inspiring homeowners to stay put longer. And with the fed already having lowered interest rates, making refinancing more appealing, there may be even fewer opportunities to buy. Low-interest rates may make home owning more appealing for first-time buyers, but the absence of affordable entry-level housing makes it challenging to do so. While the first 10 months of 2019 saw the sale of 585,000 freshly made homes, according to the Census Bureau, 56% of those homes cost over $300,000.
How will the Coronavirus impact housing sales in 2020?
Most predictions about housing sales in 2020 were made before the Coronovirus began to make headlines globally. As of now, the virus is reportedly highly contagious, with states responding by declaring states of emergency and the CDC encouraging people over the age of 60 to avoid unnecessary human interaction. Given the number of people 60 and over who were expected to contribute to home sales this year being among the most at-risk group, it’s possible housing will take a dip as people avoid open houses and inviting strangers into their homes in general.
Additionally, the economic impact of Coronavirus has yet to be fully felt. As more and more events are canceled and both employees and students are encouraged to work from home and avoid public spaces, the economy will experience a dip. The same will happen if more nations take the same measures as those taken by Italy, and quarantine the entire population. One potential upside is that iBuyers, companies that use technology to purchase homes, may see an increase in usage, and as a result, expand into more locations.
The current state of uncertainty coupled with conditions that favor holding onto your home as well as the relatively low number of Millenials capable of buying property suggests a dip in real estate sales in 2020. This state of affairs favors those who invest in rental properties, especially as interest rates see new lows and a looming recession creates a potentially large pool of renters. iBuyers, then, may flourish as people seek to unload property fast to make room for the next stages of their lives.