It’s National Homeownership Month, and we’re taking a look at the country’s current homeownership rates and the latest market trends that are driving those conditions.
For insights, we spoke with Larry “Boomer” Foster and Gary Scott, presidents of Long & Foster Real Estate.
Scott and Foster talk homeownership as a whole, millennials in the marketplace, inventory and affordability issues, and more.
Country enjoying a steady pattern of homeownership
Homeownership rates in the United States have been rising since late 2015, said Foster, holding steady at around 64% of Americans. Today’s homeownership rates are near the average rates in the 1990s, added Scott, noting that is a positive trend.
“We’re in a healthy place now and I expect homeownership to flatten and hold at about 64%,” said Foster. “It was a big thing when homeownership hit its peak at 69% in 2004, because it was not affordable for a number of people.”
Regulatory control today means that people who qualify for a loan can truly afford to repay the loan, said Foster.
“Moderate price appreciation and careful mortgage lending mean that we’re not in a real estate bubble; we’re in a healthy real estate market,” said Foster.
Everything is about balance, added Scott. “We overcorrected in 2005 when everyone could get a mortgage and we overcorrected in 2010 when no one could get a mortgage. Now we’re trying to get to the sweet spot and around 64% looks pretty good,” he said.
Growing number of millennials entering in the housing market
Millennials, currently between 21 and 37 years old, represent the largest group of homebuyers (37%) according to the National Association of Realtors. Even as some in this generation delayed marriage and children, as well as their first home purchase, studies have consistently shown a high level of interest in homeownership.
“Millennial buyers have waited a little longer for some of those life milestones like marriage and they wanted the flexibility to be able to move easily for their work,” said Scott.
Now that the generation is getting a little older, demand for homes among that age cohort is increasing, Scott said. At the same time, these buyers continue to face a major obstacle: lack of affordable inventory.
Inventory issues to continue, with a mismatch in upcoming residential construction
Neither Scott nor Foster think the limited availability of homes for sale will change soon, so low inventory will continue to be a headwind for the housing market.
“Baby boomers are choosing to age-in-place rather than move and aren’t downsizing at the rate we anticipated so their homes are not opening up for buyers,” said Foster. “At the same time, homeowners who refinanced or purchased their home with a low mortgage rate are less likely to move because they don’t want to lose that low rate.”
Another issue affecting the supply of homes is the lack of new construction, particularly for affordably priced homes, said Foster.
“Labor costs are up because there is a lack of skilled workers, trade wars are contributing to higher material costs and land continues to cost more,” said Foster. “This means that builders can’t make the margins work for entry-level homes and the product they produce doesn’t match demand.”
Regulatory issues also contribute to the cost of construction, including government delays in approving new development, said Scott. “Hopefully we’ll see more entry-level and first move-up houses in late 2020 and into 2021, if builders can find a way to develop those types of homes,” said Scott.
More to come next week
Affordability, luxury housing and local market dynamics should all be considered when talking about the real estate market, and Foster and Scott weigh in on those topics on our blog next week.