Millennials may be Homebuying Generation After all

News

Study after study has shown that
Millennials – that generation of Americans currently between the ages of 18 and
34 – are becoming homeowners at rates way below that of earlier generations at
the same age.  Now Zillow has released a
survey showing that, while they might not be buying, Millennials would definitely
like to do so.

This was one finding of the most recent U.S. Housing
Confidence Survey conducted by Pulsenomics LLC.  The most recent survey was conducted in July
and the resulting Zillow Housing Confidence Index (ZHCI) rose to 64.2, from 63.7 in the
prior survey in January. Housing
confidence increased among residents of 11 of the 20 major metro areas
surveyed.

The ZCHI is composed of three sub-indices:

  • The Housing Market Conditions Index (HMCI), which measures prevailing market trends and
    buying/selling conditions.
  • The Housing Expectations Index (HEI), measuring expected changes in home values, home
    affordability and the value of homeownership.
  • The Homeownership Aspirations Index (HAI), which measures household home-buying plans and
    attitudes toward the social value of homeownership.

The headline index and the three
sub-indices are measured on a 0 to 100 scale, with readings above 50 indicating
positive sentiment.   The survey consists
of more than 10,000 completed household interviews with adult landline and
cellphone users nationwide. The ZHCI and all sub-indices are also analyzed by tenure,
to enable measurement and comparison of housing sentiment by homeowners and
renters.

Overall, housing confidence is
higher among homeowners than renters, likely owing to historically high rents
and favorable home buying conditions, but younger renters are more upbeat about
their future home-buying prospects than their elders. Among millennial renters
82 percent said they were confident or somewhat confident that they will be
able to afford to own a home someday, compared to 64 percent of Generation X
renters (those aged 35-49) and just 48 percent of Baby Boomer renters (aged
50-64). Millennials overall were also far more optimistic about future home
value appreciation. One-third of millennials (33 percent) said they expected
home values to rise more than 6 percent per year over the next decade, compared
to 21 percent of Generation X and just 15 percent of Baby Boomers.

“It’s heartening to see younger
renters express so much confidence in their ability to buy a home in coming
years, because today’s renters by necessity are tomorrow’s buyers,” said
Zillow Chief Economist Dr. Stan Humphries. “Cynics might argue that these
results represent no more than youthful exuberance, or perhaps some naiveté,
but that’s missing the point. We need this generation to be confident and
wanting to buy, regardless of the difficulties they face. And there are
difficulties, including saving for down payments in the face of high rents and
high student debt burdens, uncertain job prospects among younger workers and
limited entry-level home inventory. But optimism is a necessary first step, and
indicates a desire among a very creative generation to find creative solutions
that will enable them to achieve homeownership.”

San
Francisco, Seattle and San Jose residents expressed the most confidence in the
housing market. Residents of Philadelphia, Chicago and St. Louis expressed the
lowest level of confidence.

Zillow said that in some respects,
millennials may have more conventional views about housing than older
generations. Almost two-thirds (65 percent) agreed with the statement that
owning a home is necessary to living the “good life” and is central
to the American dream, compared to 56 percent of Generation X and 55 percent of
Baby Boomers. Roughly 46 percent of millennials agreed that owning a home is
necessary to be a respected member of society, compared to 38 percent of
Generation X and 30 percent of Baby Boomers.

Both the HMCI and HAI rose in the
most recent survey, to 62.1 and 62.7, from 60 and 62.4 in January.  The HEI fell from 66.3 in January, to 66.1
which puts consumers’ expectations for more modest home value growth going
forward are in line with Zillow’s predictions. 
The Zillow Home Value Forecastiii predicts home value growth
of 3.1 percent through next August, down from 6.6 percent over the past year.

“Although strong aspirations
are no substitute for financial capacity or creditworthiness on a mortgage loan
application, this feedback from millennial renters is significant because it
confirms that they bear relatively few psychological scars from the housing
bust, and because the attitudes of this generation will drive housing trends in
the decades to come,” said Pulsenomics Founder Terry Loebs.
“Regarding the outlook of renters across all generations, in 14 of the 20
major metro areas in which we conduct our research, a majority of renter
households don’t believe that right now is a good time to buy a home. However,
a larger, two-thirds majority of these 3,764 renter households said that owning
a home someday is a specific goal that they are determined to reach, or
something that they think about a lot.”

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