While most indicators point to a strong economy, the housing market is one area that is not doing as well, making the American dream of owning one’s own home less likely for millennials.
The indicators that make up “the housing market”
The housing market is measured by a couple of different statistics. One is housing permits, which is the number of units that have been authorized for construction. Another is housing starts, which measures units for which construction already has begun. Both of those numbers are published by the U.S. Census Bureau. Another measure is the number of new homes sold, which is based on sales contracts signed. Finally, the National Association of Realtors provides a report on the number of used homes sold, based on the number of actual closings and is referred to as “existing home” sales. Finally, several private companies and government agencies put out data on the price of home sales, another indicator of consumer interest in buying homes. Prices are an indication of interest in buying new or existing homes.
Signs of weakness in the housing market
While other markets are climbing, such as labor and manufacturing, the housing market is faltering. Fewer permits are being issued for new homes to be built, and the number of sales of existing homes are down as well. For example, existing home sales were down 3.4 percent in September. Another sign of weakness is that home improvement companies such as Home Depot and Lowe’s are not doing as well as they were, indicating that builders are not building new homes at the same rate and buyers are not buying and renovating existing homes.
The Federal Reserve slowly has been raising interest rates, making mortgages and home-improvement loans more expensive. This, in turn, results in less interest in buying homes, and slowing demand causes fewer homes to be built. With less demand, the price of homes climbs, making them unaffordable to young people who are the traditional first-time home buyer. This leads builders to focus their attention on the high end of the market, building larger and more expensive houses rather than those that are affordable to those just starting out. And, no one knows what effect the new tax bill will have on home sales, but since it caps the amount that can be deducted for interest on mortgages and ends the property tax deductions, it might further slow the housing market.
The American Dream and the millennial
Owning your own home wasn’t always a part of the American Dream, but it certainly was for the generations that preceded millennials. Following World War II, the baby-boom, government incentives such as low interest rates for homebuyers and the rise of the suburbs stimulated an interest in home-ownership. For millennials, things are different. The homeownership rate among millennials ages 25 to 34 is 8 percent lower than it was for baby boomers when they were the same age and lower than it is for generation Xers. According to the National Association of Realtors, 32 percent of home sales are to first-time homebuyers, compared to 40 percent historically. In part, home sales are lower because millennials joined the job market during the recession, making starting a career and buying a home more difficult. Many chose to further their education and are now burdened with school loans. All these factors make it less likely that millennials can save enough to buy a home.
Could this be a good thing?
Some people argue that having the government take away incentives to buying and owning homes might be a good thing since they have steered too much individual investment into housing debt, preventing a more diversified asset portfolio. Millennials also witnessed the bursting of the housing bubble in 2008 upfront and may be reluctant to get stuck in the same downward spiral. It is also possible that millennials actually prefer to rent, although it is doubtful that they prefer to live at home as so many are forced to do. Like their penchant for switching jobs, millennials tend to value flexibility more than previous generations, and renting is much more flexible than homeownership.
Millennials might not be able or interested in buying houses and might be sticking to rentals for a variety of reasons although a large percentage of millennial renters say that buying their own home is a future goal. It remains to be seen whether home ownership, along with marriage (which is also down), remain signposts of adulthood when millennials become the dominant generation in America.
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