Millennials, long viewed as perennial home renters who were reluctant or unable to buy, are now emerging as a driving force in the U.S. housing market's recent recovery.
Demand from millennials, who today range from their mid-20s to late 30s, has been increasingly important to the housing market since at least the middle of the last decade. But more recently, these new homeowners have been pushing aside older generations to become an even bigger influence.
Millennials reached a housing milestone early last year when the group first accounted for more than half of all new home loans, and they consistently held above that level in the first months of this year, the most recent period for which data are available, according to Realtor.com. The generation made up 38% of home buyers in the year that ended July 2019, up from 32% in 2015, according to the National Association of Realtors.
The group last year also surpassed baby boomers as the biggest living adult generation in the U.S., according to the Pew Research Center. The largest cohort of millennial births was in 1990, Pew said, meaning that group turns 30 sometime this year.
"We anticipate as they turn 31 and 32, we'll just see home buying demand grow," said Odeta Kushi, deputy chief economist at First American Financial Corp. Millennials could be responsible for at least 15 million home sales in the next decade, the firm said.
Rising millennial homeownership challenges years of speculation after the 2007-09 recession that millennials would be stuck renting perpetually, hampered by student-loan debt and wary of the housing market after the foreclosure crisis.
That raised questions about how millennials would build nest eggs, because homeownership has commonly been viewed as a pillar of wealth creation. Now, brokers and economists say millennials' home buying interest was simply delayed. Older millennials are marrying and having children later in life than previous generations, after finishing their education and building up savings.
That growing demand is compounded by younger millennials, who are now entering their 30s and starting to buy homes more actively. That is more in line with the ages at which many baby boomers and Generation X, the group born before millennials, began buying homes.
"Millennials, they're roaring into home buying age," said Rick Arvielo, chief executive of mortgage lender New American Funding. "What the industry's been talking about for a decade is whether they're going to follow their predecessor generations in terms of their desire to own homes," he said, adding, "Yeah, they do -- they have the same desires."
Younger buyers were a big reason why home sales continued on the path to recovery in July. Sales of previously owned homes surged almost 25% in July to their highest seasonally adjusted annual rate since December 2006.
First-time buyers accounted for 34% of sales in July, up from 32% a year earlier, NAR said.
Low interest rates, and a desire for more space as the coronavirus pandemic leads people to spend more time at home, are boosting demand for homeownership among Americans of all ages. Many millennials have additional motivations, especially parents of young or growing families.
Sandra Martinez-Gonzalez, who is 32 years old and lives in Las Vegas, used to think she didn't want to own a home. She preferred the freedom to pick up and move. But when she started looking for a new place to rent at the beginning of the year, she realized buying would be cheaper than renting in her neighborhood.
Ms. Martinez-Gonzalez and her husband moved into their first home with their 2-year-old daughter in July. "It feels amazing," she said, citing the bigger space and a home office. "Now that we have a home it kind of feels like: Why didn't we do this sooner?"
A strong housing market can be a positive sign for the economy, as home purchases can lead to increased spending on furniture, appliances and renovations. Home builders have also expanded activity in response to the demand. Some equity analysts have pointed to a strengthening housing market as a reason for the U.S. stock market's resurgence, despite high unemployment and concerns about the continuing pandemic.
There's no guarantee millennials' robust demand will last. The recession has been a major financial setback for millions of younger workers who lost their jobs in recent months. A persistently high unemployment rate among millennials could slow home buying among the group in coming years.
For those who remain employed, ultra-low interest rates offer an additional incentive to buy, as they can reduce monthly payments and make homeownership more affordable. The average rate on a 30-year fixed-rate mortgage rose to 2.99% last week, near record lows, said mortgage-finance giant Freddie Mac.
Still, housing prices have risen relative to incomes in the past decade, making a down payment a big hurdle for many millennials, especially those with student-loan debt. In the year that ended in July 2019, more than one in five buyers in their 20s and 30s used a gift from family or friends for their down payment, according to the NAR.
Some millennials are willing to move out of state to become homeowners. Rachelle Nelson and Phillip Nelson opted to build up savings rather than buy a house when they got married in 2013. Then home prices in Fort Collins, Colo., became too high for them to afford, said Ms.Nelson, who is 28. When Mr. Nelson got a new job in June, they started shopping in Cheyenne, Wyo.
They closed on a two-story home in Cheyenne last month. "We had been wanting to buy for a long time," Ms. Nelson said. "With his new job that he got, it was what we needed in order to actually go forward."