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Zillow 2015 forecast: More millennials dive into homebuying

Rents will grow faster than home values

Zillow’s (Z) 2015 forecast says that the coming year will be big, and a major change is going to be millennials diving into the homebuying market amid rising rents.

Zillow’s annual housing predictions also identify the five best housing markets for first-time homebuyers this coming year.

“Roughly 42% of millennials say they want to buy a home in the next one to five years, compared to just 31% of Generation X, and by the end of 2015 millennials will become the largest home-buying age group,” said Dr. Stan Humphries, Zillow chief economist. “The lack of home-buying activity from millennials thus far is decidedly not because this generation isn’t interested in homeownership, but instead because younger Americans have been delaying getting married and having children, two key drivers in the decision to buy that first home. As this generation matures, they will become a home-buying force to be reckoned with.”

Among other predictions, Zillow predicts that rents will outpace home values by the end of 2015, and that builders will start building a greater number of more affordable entry-level homes.

According to Zillow, first-time homebuyers will be a critical part of the housing market next year, and certain markets will have more favorable conditions than others for buyers looking for that perfect entry-level home.

Markets most favorable to first-time buyers are those with strong income growth among 23-34 year olds, significant growth in the number of entry-level homes on the market and home prices that won’t take a big chunk out of buyers’ paychecks.

2015’s Best Housing Markets for First-Time Buyers

1.

Pittsburgh, PA

2.

Hartford, CT

3.

Chicago, IL

4.

Las Vegas, NV

5.

Atlanta, GA

(Source: Zillow)

“Home value appreciation will continue to cool down, from roughly 6% now to around 2.5% by the end of 2015. But rents will see no such slowdown, and will continue to grow around 3.5% annually throughout 2015,” Humphries said. “As renters’ costs keep going up, I expect the allure of fixed mortgage payments and a more stable housing market will entice many more otherwise content renters into the housing market.”

As for construction starts, Humphries had this to say.

“New home sales volume has been stuck around the 450,000 per year mark. In order to break out and get that number above 500,000, builders are going to have to start to build cheaper homes, which will help to narrow the price gap between new and existing homes and contribute to more rapid inventory gains,” he said.

And in general, buyers will have more leverage despite the rising interest rates and home affordability challenges.

“Since the recovery began in earnest in late 2012, buyers have really taken it on the chin, forced to contend with low inventory, tight credit, bidding wars and intense competition from investors and all-cash buyers,” he said. “But next year we’ll start to see things really turn around. More inventory will continue to come on line, putting the competitive pressure on sellers for a change. This more balanced market will be smoother sailing for everyone, both for buyers in search of a competitive advantage, and for sellers who turn around and become buyers themselves.”

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