Millennial Homebuyer Activity Climbs to Record High

• For the fifth straight year, millennials are the most active U.S. homebuyers, accounting for 36 percent of sales.
• More than half of millennials bought a home in a suburban community, and 85 percent opted for a single-family structure.
• Nearly half of millennials carry student loans, with a median debt of $27,000.

Millennials remain the most active U.S. homebuyers, though tight inventory conditions, strong price growth, student debt, and higher costs of living remain challenges to ownership for that generation.

The National Association of Realtors’ annual 2018 Home Buyer and Seller Generational Trendsstudy says that millennials accounted for 36 percent of purchases over the past year, a slight uptick from the previous survey and an all-time high. Defined as Americans under the age of 37, millennials have been the most active group of U.S. homebuyers for five straight years.

Millennial homebuyer activity in Bay Area job centers mirrors the national trend. According to a February analysis of Pacific Union data by Chief Economist Selma Hepp, buyers under the age of 35 accounted for 37 percent of transactions in San Francisco between August 2017 and January 2018, while millennials were responsible for 35 percent of purchases in Silicon Valley.

As millennials increasingly start families, they are gravitating toward more affordable suburban communities, which allow them to purchase larger homes. Fifty-two percent of millennials chose a home in the suburbs, and 85 percent of them bought single-family homes. Only 15 percent of millennials bought homes in urban areas, while an even smaller number (2 percent) opted for a condominium.

“While there is an overall trend among households young and old to migrate towards urban areas, the very low production of new condos means there are few affordable options for buyers – especially millennials,” NAR Chief Economist Lawrence Yun said.

Besides a lack of affordable starter homes, millennials must grapple with rising home prices and student-loan debt. NAR found that almost half of millennials are paying off student debt and carrying a median amount of $27,000. About one-quarter of Americans under the age of 37 said that saving for a down payment was the most difficult part of the homebuying process, and of those, 53 percent said that student loans delayed the savings process.

Millennials also face higher living costs than the generation before them, while wage growth for the demographic has been stagnant. According to a Freddie Mac analysis, between 2000 and 2016, young Americans’ expenditures increased by 36 percent. During that time period, home prices grew by 29 percent, while millennial per-capita incomes inched up by 1 percent.

A final finding from NAR’s report: When millennials are ready to purchase a home, 90 percent of them employ the services of a real estate professional, with help understanding the process cited as the primary benefit.

Risk of Bubble for California, Bay Area Housing Markets Is Minimal, Report Says

• Analysts at Arch MI do not believe that home prices are overvalued, nor do they foresee a looming bubble.
• The chances of home prices declining in California over the next two years is 3 percent, making it a minimal-risk market.
• All 12 California metropolitan areas that the report tracks have minimal risk of price depreciation by the end of the decade.

Although home prices should continue to increase for the rest of the decade, a bubble does not appear imminent nationwide, in California, or in the Bay Area.

That’s according to Arch MI’s latest Housing and Mortgage Market Review report, in which company analysts wrote “Home prices in the U.S. currently do not appear to be overvalued based on the historical relationship between home prices and incomes.” Before the housing crisis, U.S. home prices were 22 percent overvalued, then fell to levels that were 12 percent undervalued in 2012. Currently, Arch MI estimates that home prices are now 10 percent to 15 percent undervalued because of mortgage rates that remain near record lows.

The company does not foresee a housing bubble on the horizon across the U.S. or most cities. Warning signs of a housing-market bust — including too much buyer debt, inferior-quality loans, and overly rapid price appreciation — do not currently exist. The forecast echoes findings from a Freddie Mac report published last fall that also downplayed the possibility of another bubble.

Using data from the third quarter of last year, Arch MI’s Risk Index puts only three states at moderate risk for price deprecation by the end of 2019: Alaska, North Dakota, and Wyoming. California is one of 41 states that the company’s metric rates as minimal risk, with just a 3 percent chance of prices falling over the next two years. Golden State home prices increased by 7.9 percent year over year in the third quarter of 2017.

All 12 twelve California metropolitan areas for which Arch MI estimates risk are rated as minimal. The chances of price deceleration in San Jose, Oakland, and Los Angeles is 2 percent, while the likelihood of a decline in San Francisco is 3 percent. Year over year, third-quarter home prices grew by 8.5 percent in Oakland and Los Angeles, 6.8 percent in San Jose, and 6.4 percent in San Francisco.

Nationwide, the company expects home price appreciation of 2 percent to 6 percent over the next couple of years due to buyer demand that will continue to exceed tight supply conditions. Strong job growth and the aforementioned low mortgage rates should also fuel price gains.

Other housing predictions found in Arch MI’s report: the recent tax changes will impact high-priced markets like California the most; affordability will continue to deteriorate due to rising interest rates and home prices; and fewer homeowners will decide to move.