Zillow: Millennials to Step Up Homebuying in 2015

U.S. News & World Report | By Katherine Peralta | December 2, 2014

Industry watchers have bemoaned millennials’ homebuying hesitance as holding back the market, but one group says 2015 will be the selfie generation’s breakthrough year.

Millennials will surpass Generation X as the biggest homebuying generation as the growth in home values decelerates and rents continue to rise, according to 2015 predictions released Tuesday from real estate information firm Zillow.

“What we’ve been talking about isn’t that millennials are eschewing housing all together, it’s that they’re delaying life decisions that lead to the consumption of owner-occupied housing,” says Stan Humphries, Zillow’s chief economist. “But we think that fundamentally they want to own homes, they’re just not making the life decisions that lead to homeownership. Until now.”

[READ: Homeownership for Millennials Declines to Historic Lows]

Humphries says millennials’ delaying of homeownership is cyclical and structural in nature: The generation is taking on more student loans and delaying marriage and having children, which leads to buying homes later as well. They also got hit particularly hard after the Great Recession in terms of income and job gains.

What’s more, as the largest demographic group, millennials – defined by Zillow as adults 23 to 34 – have numbers on their side. There are 87 million millennials compared with 76 million baby boomers, the next-largest generation, according to a recent CNN analysis of census data.

“Even with a reduced level of homeownership rates, their large numbers mean they’ll be contributing [and] it takes a smaller percentage of homeownership by them to still account for the dominant or the plurality of housing demand,” Humphries says.

According to the Census Bureau, the homeownership rate of Americans 35 years old and younger was 36 percent in the third quarter of this year, compared with a national rate of 64.4 percent. About 42 percent of millennials say they want to buy a home in the next year to five years, compared with 31 percent of Gen Xers, which Zillow defines as adults 35 to 50 years old.

[ALSO: ‘Nuanced View’ Needed to Understand Millennial Homebuying Behavior]

The best housing markets next year for first-time homebuyers, according to Zillow, will be ones with strong income growth among 23- to 34-year-olds, significant growth in entry-level homes on the market and affordable home prices. Those include Pittsburgh, Chicago, Las Vegas, Atlanta and Hartford, Connecticut.

Home values will grow in 2015 by 2.5 percent, down from 2014 appreciation of 6 percent, Zillow anticipates, while rents will grow around 3.5 percent. “As renters’ costs keep going up, I expect the allure of fixed mortgage payments and a more stable housing market will entice many more otherwise content renters into the housing market,” Humphries wrote in a press release.

Zillow also expects construction to shift toward less expensive homes rather than big, expensive ones – which is important for many budget-conscious first-time buyers.

“New home sales volume has been stuck around the 450,000 per year mark. In order to break out and get that number above 500,000, builders are going to have to start to build cheaper homes, which will help to narrow the price gap between new and existing homes and contribute to more rapid inventory gains,” Humphries wrote.

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