Insufficient supply of new homes in the US makes life difficult for millennials
The crazy state of the US real estate market can be analyzed from almost every angle, from
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The temptation of low interest rates. In the context of the pandemic, we are experiencing an abnormally pressurized market, and as buyers and sellers consider their life-changing decisions, this pandemic will only fuel the wheels. Under market conditions that strongly favor those with more resources, investors also have a lot to watch.
From a larger demographic perspective, the most important aspect of the current housing market may be the difficulty in finding the supply of needed items for a large number of home buyers.
It is no secret that millennials, Americans between the ages of 25 and 40, are in their golden age of becoming homeowners. Although many people postpone their marriage and childbirth decisions, the entire group is still in the life stage, and buying a house is usually an ideal investment.
But what millennials need most-entry-level entry-level housing-happens to be the housing category with the most limited supply.
Freddie Mac analysis
The US market found that the country’s construction of new entry-level homes has reached its lowest point in five years, defined as residences below 1,200 square feet. In 2020, only 65,000 new entry-level homes were built in the country, while the average levels in the 1970s and 1990s were 418,000 and 207,000 per year.
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The reason for this gradual decline
In the new single-family homes, the impact on the current generation of first home buyers is obvious. When there are too few affordable new homes and the inventory of such existing homes is limited, the cost of existing homes will rise, and competition forces many potential buyers to shelve their plans.
The long-term impact of this trend is huge because
Wall Street Journal
Delaying home ownership has a profound impact on the financial life of buyers. According to an analysis by the Urban Institute, those who became homeowners between the ages of 25 and 34 accumulated a median housing wealth of $150,000 in their early 60s. Those who waited until the age of 35 to 44 to purchase their median home wealth decreased by $72,000.
“This is a big deal,” said Sam Carter, chief economist and head of Freddie Mac’s Economic and Housing Research Department. “We need to think about how to talk about affordable housing, because for most people, when they hear about affordable housing, they have an immediate negative reaction. They think “low income”, right? The problem is that these rifts are not only Invaded the middle class. It is now rising to the middle and high income class.”
If only 65,000 new entry-level homes were built in 2020 and there were 2.4 million first-time buyers, then the obvious market mismatch would be too extensive to have a profound impact.
Forbes, Joseph Edgar studied the factors that hinder the construction of new homes that meet the needs of millennials-and how long it may take for the market to fill the gaps:
“You might imagine that the high demand for new housing will trigger a large number of new buildings for developers, but the rising cost of building new houses may also slow this situation. Copper, steel, plaster, wood, soft wood, plywood and ready-made- There have been record price increases for mixed concrete. These price increases are considered to be related to epidemics and therefore will not rise for a long time, but the price drop and the market level itself may take several years.”
“In addition, I found that many builders who were burnt down during the 2008 recession did not want to invest in speculative houses, and now mainly build on the basis of sales. This means that only those with good credit or upfront capital can build houses, because many buildings Businesses will not take the risk of high prices for speculative entry-level development projects.”
“If we continue to build at the current rate, I have seen estimates that it may take us at least five years to return to the construction rate of 1.5 million new homes per year, which will ease demand and possibly lower prices.”
In the short term, if millennials want to become homeowners, they may continue to face pressure from the real estate market, making difficult trade-offs between value and location. This is a question, the basis of all the exaggerated language about the U.S. real estate market in 2021. Those who are most likely to want to buy a house will face a higher cost than they are willing to pay, and it may not be the best choice for them. need.