“Housing in 2017: Discouraged Democrats, Revived Republicans, and Middling Millennials” delves into Millennial homeownership, rising mortgage rates, and the markets to watch this year
Millennials are infamous for delaying major life events such as getting married, having children, and buying a house. So it’s fitting that the housing industry will have to wait a bit longer for them to have their big year.
Trulia released this year’s outlook, titled “Housing in 2017: Discouraged Democrats, Revived Republicans, and Middling Millennials,” written by Trulia chief economist Ralph McLaughlin. Among other topics, the report delves into Millennial homeownership, rising mortgage rates, and the markets to watch in 2017.
To gather data, Trulia commissioned two Harris Polls of two groups of just over 2,000 respondents each—one in late October before the presidential election and one after it in mid-November. The polls revealed that many between the ages of 18 and 34 don’t consider homeownership to be part of achieving their American Dream. In November 2015, the share of Millennials that said homeownership was a goal reached a high of 80 percent after a five-year climb from 65 percent. In 2016, that rate dropped to 76 percent in the pre-election poll and 72 percent in the post-election poll.
A large majority of the group, 83 percent, still said they plan on buying a home, but 73 percent said they won’t do so until the end of 2018. McLaughlin anticipates that 2017 will be a weak year for Millennial homebuying. Owners of existing homes may struggle to sell, but builders will be fine.
“For the most part, first-time homebuyers don’t buy new homes,” McLaughlin told Professional Builder. “They buy used ones, they buy existing ones. They may buy new homes later in life, but at least headed into 2017, we don’t think it’s going to hit builders that hard.”
While mortgage rates were low in 2016, hovering between 3.3 percent and 3.6 percent for a 30-year-fixed loan for most of the year, the landscape is changing. In November and December of 2016, rates rose nearly 50 basis points (half of a percentage point). Various predictions have average 30-year-fixed mortgage rates in 2017 as high as 5 percent, according to the Mortgage Bankers Association. McLaughlin estimates that rates will be in the 4 to 5 percent range.
The Trulia report says that rising rates won’t curb homebuying this year. McLaughlin wrote that mortgage rates would have to double nationally for the cost of buying a median-price home to equal the cost of renting one for the median rent. In some more affordable markets, such as Houston and Philadelphia, mortgage rates would have to rise to 14 percent for owning and renting to be equal.
Rising mortgage rates are the least of potential buyers’ concerns. The report notes that just 18 percent of respondents said that rising rates were keeping them from buying a home. More prohibitive factors include saving for a down payment (59 percent), poor credit (38 percent), and increasing home prices (35 percent).
Trulia named 10 housing markets that are poised for a surge in 2017, based on metrics such as job growth, vacancy rates, affordability, and inbound vs. outbound home searches. Florida had five markets on the list, including No.1-ranked Jacksonville. The state’s most populous city scored well in home search ratio, low vacancy rates, and job growth but was only average in affordability.
“From a home builder’s perspective, if a home builder could build homes that would be affordable to the middle class, we think there is opportunity there to capitalize on what otherwise is a very strong housing market,” McLaughlin says.
Strong job growth in the private sector and an aging Baby Boomer population boosted other Florida markets—Cape Coral-Fort Myers and Deltona-Daytona Beach–Ormond Beach—into the top three. The remainder of the top 10, in order are: Grand Rapids, Mich.; Tampa-St. Petersburg, Fla.; Colorado Springs, Colo.; Charleston, S.C.; San Antonio; Phoenix; and North Port-Sarasota-Bradenton, Fla.