Updated: Jun 27, 2021
If the legendary Jedi master Yoda spent all roughly ~900~ years of his existence as a real estate agent here on planet Earth, when asked what his perspective of the housing market would be, he'd most likely reply, "Never before seen, Have I." If you follow the real estate market, you know that the market for private residential real estate over the past year has Luke Sky-Rocketed. (Not my best, but worth a shot) I'm sure there are some of you reading this blog right now that have either tried to make a purchase on a house, or know someone that has been trying, and have been outbid or unable to close due to the nature of the market. Buyers are coming into the market in such great quantities, that there is not enough supply of houses on the market to fulfill the demand. And as we know , the nature of limited supply and increased demand, ultimately makes prices rise.
So what's driving the spiking demand we are seeing in home-buying? There are 3 driving ~forces~ that I think are important to understand.
Force 1: The Pandemic.
Possibly the most obvious and impactful factor in the shift to home-buying has been the Covid-19 pandemic, and the changes that have occurred in the way we approach our every-day life. In a matter of a few weeks, entire industries jumped completely online, leveraging remote working capabilities with platforms like Zoom and Microsoft Teams. (I'm #TeamTeams) People began to adjust to their new ways of working, and assessed their home offices on the corners of dining room tables and kitchen countertops. With companies beginning to roll out new plans of a hybrid model moving forward, and more time spent working remotely, Americans are seeking larger housing options in droves to accommodate for their new style of work.
It is also important to mention the impact that urban density has had on the moving trends out of cities in America. With the difficulty of social distancing due to the high population in cities, and the small amount of space to spend your time quarantining in, cities were exited in record numbers. Check out this data provided from USPS showing the total change of address requests from February to August of 2020:
I would argue that the pandemic was the catalyst for the boom in housing, however there are other significant underlying forces moving the housing market that are important to be aware of.
Force 2: The Demographic Shift in the Galaxy.
In 2019, the Millennials surpassed the Baby Boomers as the nation's largest living adult generation, according to population estimates from the U.S. Census Bureau. Millennials ages range from 25-40 years old currently, and are entering their prime working and early family formation years of their lives. As members aboard the Millennial Falcon begin to search across the galaxy for their home, they will be doing so later on in life than that of their generations before them:
As you can see from the data above, millennials have been slower to purchase homes than that of Gen X and their parents, the Baby Boomer generation. Considering that millennials have been staying in school longer, accruing more debt, and starting families later on in life than previous generations, this makes sense. However, with the catalyst of the pandemic, and the increasing demand to own homes, I wouldn't expect these trends to stay for much longer. Here are some other important facts to consider about the increasing demand of millennials buying homes in the coming years:
Only 47.9% of all millennials currently own a home.
The median age of first-time home buyers is 33, the middle age of millennials.
Over 80% of millennials who do not own a home, want to.
72% of millennials consider owning a home to be their top life goal, ranking 22% higher than marriage and 28% higher than having children.
While the current supply for houses is constrained, it is clear that we are in the midst of a great tail-wind for home-ownership thanks to increasing demographic shifts in our society. It's just a matter of time before many millennials are turning to their own home-searching companions, and uttering those famous words of Hans Solo himself, "We're Home"...
Force 3: The Economic Environment
Thirdly and finally, it is important to briefly note the forces of the economic environment we are in. We are seeing interest rates at all time record lows, allowing for home buyers to gain access to cash easier than ever before. The lowering of interest rates has allowed for many buyers to have a significantly lower down-payment than historical averages, often times as low as 5-10%.
We are reentering a bull market and an era of technological and economic advancement that we haven't seen in our lifetime. Thanks to quick government action in response to the pandemic, many Americans have been able to improve their financial condition over the past year. Although many worry of factors such as inflation, the economic benefits we have seen from the increased government spending and assistance to American households has provided a boom in many different areas of the economy.
The iShares U.S. Home Construction ETF (ITB) which tracks stocks within the home-building sector, has risen dramatically over the past year, up a staggering 135%. With lumber prices also at all time highs, and the industry in homebuilding booming, the case can easily be made to see continued strong growth in this sector. A recent study found that there are more registered real estate agents in the United States than homes for sale. With that type of pent up demand, the macro-environment trends from the Covid-19 pandemic, the demographic shift towards millennial home-buying, and a strong economy, the forces of the real-estate market are as strong as any Jedi-master in the galaxy.
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