By Kermit Baker
For decades, the baby-boom generation has dominated the U.S. housing market. Any housing market outlook has typically begun with an analysis of what baby boomers are doing and feeling and thinking and expect to do with their homes in the coming years. And there are good reasons for this fixation on baby boomers. Even now, more than half of the owners in the country are age 55 or older, and almost half of the home improvement expenditures nationally are made by households in this age range.
However, for the housing market to develop some momentum in the coming years, there needs to be more involvement by younger households. Younger households buying starter homes free up sellers to trade-up to a more expensive home, which in turn allows these sellers to buy even more expensive homes. As these buyers move through the housing market, new homes are built and existing homes are improved, creating opportunities for everyone serving the residential market.
So, this process needs to start from the bottom. The problem is that the millennial generation in particular has had a difficult time getting to the first rung of this housing ladder. Their problems in entering the housing market are well documented: high levels of student loan debt that limit their ability to afford rent or mortgage payments; high levels of unemployment or underemployment; low salaries and wages for those who are employed; and restrictive mortgage lending practices for those who want to purchase a home.
This situation is even more critical given the potential. The millennial generation —defined here as persons born between 1985 and 2004 — is comprised of more than 79 million persons, making it a slightly larger generation by births than the baby-boom generation. By 2025 when this generation is more fully engaged in the housing market, immigration is projected to have increased the numbers to more than 86 million, making it almost 7 percent larger than the baby-boom generation was at comparable ages.
Once the millennials begin to catch up with prior generations in terms of progress in the housing market, and there is every indication that they will, the housing market will see dramatic improvement. For example, if today’s millennials merely matched the performance of Gen Xers when they were this age in terms of forming households and buying homes, there would be 400,000 more owner-occupied homes in the country at present. With these additional owners, spending on home improvements by millennials would be 10 percent greater than its current level.
Millennials are quite optimistic about their potential housing progress over the next five years. The number of households headed by millennials is projected to increase by 8.3 million over this period, or 62 percent according to the Demand Institute, based on a study conducted in 2013. According to their extensive survey work, an additional 34 percent of millennials expect to be married in five years, on top of the 30 percent who are currently married. And additional 19 percent expect to have children in five years, above the 36 percent who currently have children. And as a result of these expected changes, an additional 60 percent of millennials plan to purchase a home within the next five years, on top of the 24 percent who already own.
The housing industry is still focusing on baby boomers as a key driver for the housing market. It’s past time to adjust our perspective. Within just a few years, in all likelihood, the millennial generation will be driving most of the growth, and determining the health of the market over the next several decades.