Even though economists and real estate analysts are projecting the housing market to normalize within the next five years, a full recovery is being slowed down due to first-time buyers who cannot afford to purchase a home.
According to Zillow’s latest home price expectation survey, the millennial generation is not buying properties right now because their rents are too high. Therefore, millennials lack enough money to afford a down payment for a mortgage.
Another challenge harming the housing recovery is a lack of household formation. More than a third of adults are currently living with a roommate, according to the Census Bureau, which is a higher percentage compared to 2000 when about 25% of renters were deemed to be doubled-up household.
Furthermore, inventory levels have also tightened as adults nearing retirement have chosen to stay in their homes rather than sell.
“We’ve reached a point in the recovery where the only real cure-all is time,” said Stan Humphries, chief economist at Zillow. “The market remains very challenging for younger, first-time homebuyers who face an uphill battle qualifying for a mortgage and finding an affordable home to buy. At the same time, many older homeowners are trapped underwater or are unable to find buyers for their homes.”
Out of 107 survey respondents, 20% said the housing market has already returned to normal or will within the next 12 months.
However, 30% of panelists surveyed think the housing market will stabilize over the next two years. Meanwhile, 40% believe it will take another three to five years for normalcy.
Survey respondents expect median home values to rise nearly 5% this year, to $176,760, and another 3.7% in 2015. The national median home price is forecasted to exceed $196,400 the peak seven years ago when the housing crisis began in February 2018.
“The landscape is slowly changing, as incomes begin to grow, negative equity fades and new households start to form. These shifts won’t occur overnight, but they are happening. Patience will be a virtue over the next few years as we wait for these traditional fundamentals to more fully take hold in the market,” Humphries said.