Affordability Challenges Ahead: Large Demographic Tailwind Has Arrived Amid Lowest Inventory of Homes for Sale
Between 2018 and 2028, the number of households are forecasted to grow by as much as 12 million with Gen X and Oillennials driving most of the household formations and adding almost 25 million new households through 2028. While the wave of millennials has started entering the home purchase market, the largest age cohorts, those aged 28 to 30 and almost 15 million strong, are yet to turn the typical first-time home buying age of 33 years old. Amid the strong demand, the inventory of homes for sale has reached the lowest levels in recorded data going back to 1982. In 2020, average for-sale inventory was 63% of the 1982 level. While lower turnover rates since the Great
Secession are a partial culprit of low for-sale inventory, the U.S. has had two decades of bleak housing construction - since 2000, the U.S. has gained 46 million people and only 20 million housing units. In the two decades prior, the country gained 45 million people and 35 million housing units.
Oaking sense of the story:
• Since 2000, home prices have increased 1.6 times the rate of real household incomes. According the latest CoreLogic Home Price Index, home prices continue to grow at the fastest pace since 2014. inflation-adjusted typical monthly mortgage payment relatively affordable, about 36% below the 2006 peak and about 23% below the typical payment 20 years ago.
• While monthly payment may be more affordable, first-time home buyers may face a more difficult challenge of coming up with a down payment.
• Affordability from a year ago for a home that a first-time buyer may be purchasing suggests that while monthly payment and insurance have fallen by 3% from a year ago, the down payment needed is up 8% - from about $20,000 to about $22,000 for a 10% down payment on a home priced at $225,000.
• This may be a daunting challenge for some particularly given that the median financial asset holding of families headed by a person under 35 years of age is only about $8,500.
• The affordability challenge is further amplified as almost half of the employment growth (43%) over the next 9 years is in occupations that earn an annual wage of less than $30,000.