Millennials to help spur demand for smaller, less expensive homes

November 12th, 2014

As millennials hunt for smaller homes in the coming year, they may have to compete with downsizing baby boomers.

Some analysts have predicted the pool of adult millennial potential first-time homebuyers will appear in the housing market in force in 2015.

This projection came about during the 2014 National Association of Realtors (NAR) Conference and Expo, which was held in New Orleans Nov. 7-10. Various representatives for NAR and other industry groups expressed their views regarding the changing demographics in the housing market. One consensus among the analysts was the expectation that adult millennials, those aged 18 to 33, would show more homebuying activity as the economy – and the job market specifically – continues to improve. This renewed activity would follow the current trend of first-time homebuyers having their smallest share of home sales in decades.

“Millennials are the largest generation of people in the U.S. and represent 60 percent of first-time homebuyers,” said Realtor.com Chief Economist Jonathan Smoke, according to a press release. “They are also more likely than any other group to purchase a home in the next year.”

Lisa Sturtevant, vice president of research for the National Housing Conference, cited economic concerns as one of the key inhibitors of homebuying aspirations among adult millennials, but conditions are improving. In October, for example, the unemployment rate held below 6 percent, and nonfarm payroll employment rose 214,000 positions from September. Although wage growth has still been sluggish and tight inventory and tough lending standards have presented obstacles for some potential millennial buyers, analysts see these issues as short-term setbacks.

Millennial homebuyer demand to focus on small homes
The economists who spoke at the NAR conference also noted millennials will shoot for smaller, more affordable properties on the market, which could present additional competition.

“With millennials searching for new homes, baby boomers downsizing, and groups with historically lower incomes all entering the market, an increased demand for smaller, less expensive homes will begin to emerge,” Sturtevant said.

One report from Pew Research Center said 10,000 boomers will reach 65 – the traditional retirement age – each day for the 19 years following 2010. Considering these homebuyers who are looking to downsize are more financially prepared to own a home, boomers can present stiff competition for millennials.

One piece of good news is a June Fannie Mae report revealed many boomers actually want to stay in their homes rather than downsizing. This could leave more of the smaller homes on the market for millennials.