While the last few years have improved the housing market, lack of inventory, high home prices and a shortage of inventory continue to plague homebuyers. In fact, as far as inventory goes, there is still room for two more years of expansion, said Managing Director Robert Curran in a webcast for Fitch Ratings, a financial information services company.
This chart shows the housing recovery in new construction starts:
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(Source: U.S. Census Bureau, Fitch Forecasts)
Historically, first time homebuyers made up 40% of the market, however currently they comprise closer to 30% of the market, Curran said. This is due, in part, to the credit tightening during the recession.
Lately, the government attempted to lower credit standards by offering loans for homebuyers with lower FICO scores, and with a smaller down payment.
Mortgage credit tightening held back the spring home buying season, despite industry efforts to relieve it. Whereas industry giants such as Fannie Mae and Freddie Mac sought to implement programs that would loosen the credit availability, it seems that the rest of the market is somewhat hesitant to jump in.
Many banks create their own overlays of these lowered standards.
On the other hand, many Millennials are not getting married until later, and therefore delaying their plans for homeownership.
This chart shows how delaying marriage effects the rate of homeownership:
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(Source: U.S. Census Bureau, Fitch Ratings)
First time homebuyers are now older than they were in the past with the average age of first-time homebuyers hovering in the 30s, Curran said.
The ability to save for a down payment historically ranks as the biggest hurdle for first-time homebuyers, until now. According to a new housing report from Fitch Ratings, there’s a new problem that’s creating an even bigger roadblock for entry-level buyers — inventory shortages.
The best solution? More affordable housing. The lack of availability in affordable homes is creating a challenge for Millennials in the housing market.
This chart shows the regional differences that are developing, and what states have more sustainable home prices:
Click to Enlarge:
(Source: Fitch Ratings)
Due to these rising home prices, lack of affordable homes and inability to save for a down payment, less Millennials are able to buy their own home. In fact, more young adults are living with their parents than in the recession, according to PEW Research Center.
Of course, higher paying jobs would help Millennials save for a down payment, but the recent jobs report came in much lower than anyone expected.
The construction downturn severely reduced employment, Curran said. In fact, only a portion of workers returned due to tighter immigration policies, fewer young people trained in the trades or attracted to the work and the continued absence of former construction and oil field workers.
Higher pay may be required to attracted workers back to the field, but that could also encourage builders to build more expensive homes to make up for it, Curran said.