2015 Will Be The Year Of Millennials In Real Estate

By Joshua Hines

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Millennials are the future of Real Estate and will drive growth starting in 2015

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Realtor.com’s chief economist Jonathan Smoke is launching his first annual forecast, and in an industry crowded with analysis and economists throwing around numbers, he’s determined to stand out. The differences between what Smoke is doing and his slew of competitors – as well as his affiliated economists at the National Association of Realtors – comes down to the data he is looking at and what he’s doing with it.

And so here it is, Realtor.com’s first forecast.

1) Millennials will drive household formations

Both population and households have grown at a slightly higher pace in 2014 and this trend will continue in 2015 with modest improvement over 2014 increases. Households headed by millennials will see significant growth as a reflection of economic gains. Millennials will also drive two-thirds of household formations over the next five years. Next year’s addition of 2.75 million jobs and increased household formation will be the two key factors driving first-time buyer sales.

“The story about millenials not forming households and getting into homebuying is more of a 2012 and early 2013 story,” he tells HousingWire. “It’s outdated. Our view of 2015 is informed by strong trends and indicators of what’s happening today with millennials.

“In 2014, it’s been a banner year for employment but parsed by age groups those under 35 have been gaining jobs at a 60% faster rate than rest – one of the best years for employment was even better for millennials,” he said.

Aside from the gains in employment for those under 35, Smoke said the other driver is that these younger buyers are, well, getting older.

“The rest of it is more of a life story – if you looks at bell curve – (for millennials) the median age is 24 – so the oldest cohort of 25-34 puts the majority of the population finished with or finishing school and grad school, and getting married. We’re seeing birth rates putting 2014 in the running for highest volume of births in years,” he said. “There’s no reason to believe their situation will do anything but improve because the backdrop of economic circumstances is getting dramatically better.”

He added that changes opening up the credit boxes, as a function of the new reps and warranties policies from the GSEs, final QM implementation in 2015 or simply banks getting more aggressive in lending because of greater potential to make more money as interest rates rise – will benefit younger buyers more than anyone else.

2) Existing home sales will increase +8%

Existing home sales will grow as more buyers enter the market motivated by a clear understanding that both rates and prices will continue to rise.  The increase in home sales year-over-year will be similar to 2012, but this time the composition of properties sold will be more normal with minimal levels of distressed properties. While the majority of housing activity next year will be driven by baby boomers preparing for retirement, millennials will account for 65 percent of first-time home buyer sales in 2015.

“The boomers definitely have the highest share of transactions, and they are most numerous on existing ownership and driving more of activity, especially if you take investors out of the picture,” Smoke said. “Boomers and their wealth combined with the absence of the first time market is why you’ve seen a skewed market.

Read the entire piece here…