Real estate markets have undergone extraordinary changes over the past year as the global pandemic has dominated business activity and headlines, and restricted the daily lives of most people. Through the ups and downs of COVID, housing markets have provided refuge from crosswinds. For most Americans, homes have become not only shelters, but have also taken on a number of other roles and functions: workplace, school, gym, etc. Many people have found that the homes they had chosen no longer fit their needs, which has led to an increase in demand for real estate nationwide.
In the wake of the 2020 quarantines, housing markets led the economic rebound and have seen a full recovery after twelve months, based on data from Realtor.com Housing Market Recovery Index. Building on that momentum, the first six months of 2021 saw low inventory, soaring home prices and frantic buyers looking to lock in historically low mortgage rates. As we move through the second half of this year, markets are trending towards normalization, with more sellers entering the market and prices rising at a more moderate pace.
A historic tidal wave
For first-time buyers, the dramatic changes of the past year have resulted in shifting housing preferences, with versatility, space and flexibility propelling the choices. As millennials – the largest generational cohort in the country’s history – reach the stage of their lives, they play an increasingly important role in the housing market in the United States.
This role is even more important when analyzed from the perspective of the period 2017-2026, which represents the peak of the millennial cohort as its youngest members reach the age of 30. 4.6 million more in 2018-2019. That continues this year, with 4.8 million millennials reaching their third decade of life. Equally important, this life turning point will persist through 2026, with each successive year seeing at least 4.7 million Americans reach the age at which buying a home becomes an important consideration in life choices.
With such a large footprint on the real estate landscape, millennials are confounding more than a decade of misplaced expectations — and busting myths in the process. Looking at over 10 years of headlines, the overriding theme was that millennials were meant to be “the renter generation,” distinctly different from previous cohorts. Millennials weren’t expected to buy homes, opting instead for a more flexible lifestyle centered around revitalized downtowns and focused on experiences rather than assets.
These predictions turned out to be wrong when millennials hit their thirties. Recent Realtor.com surveys show that their main motivation for buying a house is the desire to own. As millennials have matured and moved on to the stage in life where forming families and having children become important, they have adopted similar choices as previous cohorts over similar life periods.
Millennial buyer profile
For Millennials, turning 30 drives home buying preferences and decisions. Whether moving in with a partner or having children, they are looking for a home that can meet their growing needs. So, what type of home is favored by millennial buyers in 2021? A three-bedroom, two-and-a-half-bath home is at the top of the list, in a quiet location, with a large backyard, close to good public schools and space for pets, as well as a an open floor plan and a home office. Reflecting an extremely tight housing market with a limited inventory of available homes, buyers are also expressing a higher preference for new builds or fully renovated homes.
Given this year’s stormy market, where multiple offers and price review clauses are the norm, affordability is another major theme in the millennial buyer profile. About 60% of all 2021 buyers are looking to pay $350,000 or less, including 16% of those looking for homes under $100,000.
The changing life stage is also changing the location preferences of this year’s shoppers. According to data from Realtor.com, 62% of buyers plan to leave their current city or town. Of these, 24% plan to move to a nearby city/town and 16% plan to move further within the same state, while 21% plan to cross state lines. The main drivers of the 2021 relocation plans are lower housing costs, proximity to family and friends, better access to outdoor activities and lower taxes.
Implications for house building
After a decade of spurring the renaissance of urban downtowns, millennials are turning their attention and buying dollars to the suburbs, as well as mid-sized and small towns within a two-hour drive of major employment hubs . The buyer profile of today’s first-time buyers points firmly to single-family homes in greener neighborhoods, a place that is not only very familiar to homebuilders, but also where much of the construction activity actively reshaping communities. For homebuilders, this generation’s strong preference for home ownership presents huge opportunities.
The last time the country faced such a large demographic wave was during the baby boom period of the 1950s and 1960s. Back then, real estate markets offered young baby boomers a plethora of new housing options, from inexpensive houses from the Sears catalog to one-of-a-kind luxury homes. More importantly, affordable and mid-priced options were plentiful across the country. By comparison, today’s millennial households have a very small menu of new homes to choose from and most of them are at the higher end of the price range. The shortage of new and affordable housing is one of the main reasons for the imbalanced markets and high prices this year. Moving forward, affordable housing – whether existing or new construction – is a key part of a sustainable housing and economic foundation. And the need for new construction is felt in communities of all sizes.
It is important that cities across the country re-examine zoning and development planning tools, many of which were enacted decades ago and may no longer be relevant to today’s reality. Removing building restrictions, widening development corridors, lowering regulatory costs and exploring new building technologies could lead to lower long-term costs and more affordable homes for the millions of first-time buyers who will hit the market in the years to come. With huge opportunities come great responsibilities, and we can all play an active role in ensuring that not only today’s millennials, but also tomorrow’s Gen Z first-time buyers, have access to affordable housing. and quality.
This article originally appeared in the August print and digital editions of Builder & Developer Magazine.