The strengthening of the economy and the labor sector is prompting more young professionals to gradually return to the real estate market.
Since the housing turnaround started in 2012, many first-time home buyers have been shut out, with a poor labor market and low wages forcing many young professionals to move back with their parents or to rent. Last year, the number of first-time buyers plunged to a 30-year low, according to data from the National Association of REALTORS®.
“Credit tightness has been an issue for the housing market but demand weakness has been a bigger one,” says Douglas Duncan, chief economist at Fannie Mae. “The improving economy is going to put renters in a better place to buy.”
Duncan predicts a 6.3 percent jump in mortgage lending this year – that would follow a 9.6 percent drop in 2014. Growing confidence in the job market is the strongest indicator that home sales will improve, Duncan says.
With added jobs, more consumers see their wages growing too. Overall, consumers expect a 1.7 percent rise in their incomes this year, the highest increase since 2008, according to the Thomson Reuters/University of Michigan consumer sentiment poll. Americans under the age of 45 years old are expecting the largest gains in incomes at 4.7 percent.
“Young renters have wanted to keep their living situations flexible because they didn’t know if they were going to have to move for a job,” Duncan says. “More of them are going to be willing to put down roots if they feel more confident in the labor market.”
The economy added more than 2.7 million jobs in 2014, the highest amount since 1999, according to data from the Bureau of Labor Statistics.
Household formation is a key measure of real estate demand. Household formation is expected to increase to 1.1 million this year, the highest in three years, according to IHS Global Instight Inc. forecasts.
“If the first-time buyers aren’t in the market, the sellers can’t move up and buy their next houses,” Bill Banfield, vice president of Quicken Loans Inc. in Detroit, told Bloomberg News. “The real estate market needs an increase in entry-level demand” for it to fully recover.
Source: “Young Home Buyers Return to U.S. as Economy Enlarges,” Bloomberg News (Jan. 5, 2015)
Reprinted from REALTOR® Magazine Online, January 2015, with permission of the NATIONAL ASSOCIATION OF REALTORS®. Copyright January 2015. All rights reserved. http://realtormag.realtor.org