Life-stage transitions continue to shape housing market
Wednesday, June 14, 2017
Predictions that aging baby boomers would flock to retirement havens or that millennials would split from the lifestyle patterns of their parents and grandparents and shun a suburban existence appear to have been premature.
As recent market studies show — for both buyers and sellers — life-stage transitions, not cohort behavior, are having the greatest impact on the housing market. In fact, life-stage events often trigger the decision to sell or purchase a home, even more than economic conditions.
Home builders and realtors for months have pointed to improvement in employment, wages and the economy as a whole, along with relatively low interest rates and some easing of lending, as indicators that home sales would improve this year. And while rising home prices and tight inventories have to some degree hampered prospective buyers, what appears to be prompting increased demand for home purchases is a confluence of demographic and life-stage trends.
Millennials in greater numbers are entering their 30s and opting to marry and start families. Gen Xers have reached their peak earning years as their children are approaching their teens. So-called "sandwich" boomers are caring for both older children and parents. And older boomers, many of whom are empty-nesters, either are choosing to remain in their current home, or have downsized or are anticipating downsizing, or are moving closer to their adult children, whether they are able to retire or not.
Those are some of the findings of the recently released "2017 Home Buyers & Sellers Generational Trends Report" from the National Association of Realtors. Getting married and having a family are the life-stage events mostly likely to drive the decision to purchase a home. Two-thirds of all homebuyers are married couples, and nearly 1 in 4 has children under the age of 18 living in the home.
Currently, buyers age 36 and younger make up the largest portion of homebuyers (34 percent). Notably, two-thirds of these younger buyers are married, and nearly half have children under the age of 18 living in the home.
In comparison, a Gallup poll conducted last year found less than 40 percent of millennials are married, and 40 percent had no children under the age of 18 living in the home. A recent Pew study shows many of these single millennials are renting or living with their parents for an extended period of time.
Married millennials tend to favor single-family homes, preferably in the suburbs. These young, married couples also made up the lion's share (66 percent) of all first-time homebuyers and paid the lowest median price for a home ($205,000).
While the expectation is that empty-nester baby boomers would be eager to cash in on the increased value of their homes and either downsize or relocate to a retirement community, it turns out that homeowners age 37-51 were the most likely cohort to sell their homes, primarily in order to trade up to a newer or larger home.
These buyers also chose to move in order to be closer to their jobs and/or to better schools. They have the highest median incomes and were willing to pay the most for the home they wanted ($261,000).
Younger baby boomers, those ages 52-61, were most likely to buy a multigenerational home. They also planned to remain in their homes the longest — 20 years on average.
Older boomers, ages 62-70, were the second-largest group of sellers. While many older boomers have chosen to remain in their homes or cannot afford to move, those who relocate do so primarily because of retirement or to be closer to family and friends. They were also the group most likely to move the farthest from their existing home, at a median of 25 miles.
What does all this mean for the housing market? The good news is that there are still tens of millions of millennials in the pipeline approaching age 31 (the median age for first-time homebuyers), and more of these millennials are getting married and starting families.
In addition, as baby boomers nudge toward their mid-70s, more of them are likely to find their current home more difficult to maintain, even with having remodeled for aging in place. Provided they can find suitable alternative housing, this should open up desirable inventory for younger buyers.
On the other hand, millennials are more likely to be in the market for more affordable or starter homes, of which there is short supply. New home buyers, who make up only 14 percent of all home purchasers, tend to be older and wealthier.
Builders in recent years have focused on current homeowners looking to buy up. The median price of a newly built home in March was $315,000, significantly higher than the $236,400 median for existing homes — and both higher than the median price of $227,000 paid in the NAR report. There are considerably fewer prospective buyers for these homes.
As the largest portion of the nation's largest cohort reaches home-buying age and move into the next life stage of marriage and family, pressure will continue to build for more available and more affordable housing. The demographic shift of millennials from urban to suburban areas, as documented in a recent study by the Urban Land Institute, also will continue for the same reason.
The market is already beginning to adjust to meet these demands. All of which suggests housing could be headed toward another boom, but the market will need to make adjustments for that to happen.
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