Zillow, the real estate marketplace platform, recently released a press release on the data and expected forecast of the housing market. Zillow found that while the Fed has prevented an economic crash, the current housing market is still trying to stabilize itself post-pandemic. It also revealed that home values are rising at “pre-pandemic rates nationally,” but current homeowners are not quite ready to sell.
While current buyers are faced with fewer choices, builders are using this opportunity to compete with homeowners. Zillow also found that current homeowners, even with their record-breaking low-interest rates on their current mortgages, are still interested in selling their homes in the next few years.
“The housing market is stabilizing after the turbulence of the pandemic, but the effects will be with us for a long time,” explained Zillow Senior Economist Jeff Tucker in the press release. “Price appreciation is back to normal after a short reset, but that means buyers still face serious cost challenges and competition, especially for the most affordable houses and in less expensive markets.”
Some Of The Homebuyer Challenges That Millennials Face
There are optimistic buyers who believe that there is a chance that history might repeat itself. However, experts and economists agreed that the current housing fundamentals will not return as they did in 2008. Here are a few housing challenges that current homebuyers are up against.
While there are eager sellers on the market, buyers are looking at higher costs for even starter homes. According to Redfin, the national average for starter homes is $243,000. If you adjust for metro city areas, then that price could easily double. In the same article, Redfin also noted that “a first-time homebuyer must earn roughly $64,500 per year to afford the typical U.S. ‘starter’ home, up 13% ($7,200) from a year ago.” While Millennials are earning more money, the markets where they can make the most earning potential are not decreasing in price.
During the pandemic, a lot of people who were able to work remotely did, and many moved to areas where the cost of living is cheaper. Zillow stated that the “pandemic housing boom caused others to project an equally painful comedown.” Additionally, Zillow concluded that “Home-buying demand spiked because many households had not yet been able to strike out on their own after years of underbuilding during the Great Recession, and the huge Millennial generation had entered prime home-buying age.”
The Lock-In Effect
Current homebuyers want to move. Even though more are expected to move in the next few years, they face the same reality that potential homebuyers face: buying an overpriced home. “Home values fell in the second half of last year, but the same low mortgage rates that supercharged pandemic demand for purchases and refinances also put a floor under how far home values could fall,” Zillow explained. While some economists believe that “mortgage rates could tick down in the long term,” there is no guarantee that the rates will mirror the current low rates homeowners have now.
Right now, there are more people who want to buy a home than there are homes available. This drives current homebuyers to set a higher price for their homes when they want to sell. Even with homes priced higher, there still isn’t enough to supply the demand.
Overall, the homebuyer challenges Millennials face entering the post-pandemic housing market are proving to be difficult. However, as Millennials age, they are exploring alternative housing options. Some are considering housing markets that are outside of major cities, while others are open to buying condos.
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by Arielle Clay | January 19, 2023
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