Millennials Expected to Maintain Real Estate Buying Intensity

Home prices are overheating, mortgage rates are inching up from the start of the year and the supply of homes is in an unseasonable valley – far from its Mt. Rainier-esque peak of a decade past! It’s both fascinating and frustrating to watch. Amid the challengers for buyers, there is an expectation for housing activity to continue puffing its Thomas the Tank Engine without a misfire – at least through early summer – before possibly lowering a gear.

One of the reasons for the continued home-sales intensity – in any season – is a key group of “new” buyers. Thank you, Millennials!

This segment of America, born from about 1980 to 1998 and the largest living adult generation in U.S. history, continues its march into prime home-buying years at a rate of more than 4.5 million individuals annually. Roughly 20 million Millennials will be entering their 30s, typically the time they purchase their first home, between now and 2024. Today, 37% of all buyers are Millennials and they comprise about 54% of all mortgage applications. A full 48% of all homeowners are now Millennials, up eight percentage points from only three years ago.

The 2010s saw a surge in Millennials arriving to our area, helping to make Seattle the fastest growing big city of the last decade. In fact, 36% of all Seattleites are Millennials. The narrow area known as Westlake, just west of Lake Union (and, notably, close to Facebook, Google and Amazon offices), has seen the number of people aged 25-34 double from 2010 to 2019 and now comprise 52% of its residents.

To be sure, the number of Millennials buying homes is at a slower pace than their contemporaries. At age 30, 41% of Millennials own homes, compared to 48% of Gen Xers and 51% of Baby Boomers when they hit their thirties. But the gap between Millennial and Gen X ownership has narrowed, from 9.5 percentage points at age 30 to only 4.8 points at 34.

Often burdened by lingering student loans, younger generations are putting down less to buy a place and absorbing more debt to take advantage of still-favorable mortgage rates. Three-quarters of respondents to a survey last summer said that low interest rates would enable them to start their home search sooner. But rates are trending higher, now around 3.125% from about 2.75% on Jan. 1, and there could come an affordability tipping point, as I noted earlier.

Warns Danielle Hale, chief economist with realtor.com: “While younger Millennial and Gen Z buyers are expected to play a growing role in the housing market, fast-rising prices will create a bigger barrier to entry for the many first-time buyers in these generations who don’t have existing home equity to tap for down payment savings.”

Still, we have seen many consumers – including Millennials – save their money over the past year-plus while dining out and travel were not available or advisable. With a larger nest egg, and support from down-payment assistance programs, Millennials are seeing the timing is favorable for seeking out their first homes.

3-D PRINTED WHAT??

I don’t usually tout the work on my Living the Dream blog except for a brief mention at the bottom of each newsletter in the “In case you missed it …” section. This month, I am making an exception.

One blog post has been on my radar since last summer, and I was finally able to pull together enough detail and visuals to tell the story right. It’s about a Texas-based company and its ingenious founder that make homes with a 3-D printer. Homes of about 800 sq. ft. are “printed” in 24 hours for about $4,000 (plus windows, doors and a roof). Icon is on a mission to change the way we house the homeless and others.

While the words from the article tell a compelling story on their one, the visuals add the needed icing on the cake:

SUPPLY-DEMAND IMBALANCE

The lack of housing – or “sticks and bricks,” as some in our industry call it – has apparently been around for several decades, according to one economist.

“The excess of inventory that occurred in 2007, 2008 and ’09, was an anomaly,” said Marci Rossell, former chief economist for CNBC. “This inventory issue is long-term and if my memory serves me correct, that’s been true since 1980 that the amount of building relative to the population has been declining.”

There was plenty of excess in our region too, with about 23,700 listings (comprising all home types) across King and Snohomish counties in July 2008 (green). Compare that to the end-April total of 4551 Active listings for the two counties, as well as 0.6 month total inventory (blue):

Reasons for the lack of homes today are varied and often cited in this newsletter. They range from restrictive zoning (NIMBY) laws, the high cost of building in an urban area and a depleted labor force. The construction industry has relied heavily on migrant and immigrant workers, however as the sector dried up during the recession many workers either returned to their native countries or moved on to different lines of work.

So, what is the answer to help unlock the housing shortage? More people, says Rossell.

“We simply have a country where the birth rates have, for most groups, flattened out. Our population is not growing,” Rossell explains. “Either we have to ‘buy’ it from a country where the labor force is growing – like China or India – or we have to find a way to grow the labor force in the United States. And the only way to do that is through immigration.

“We have got to get people from somewhere else and figure out politically how we can do that in a way that’s not polarizing and doesn’t rip at our social fabric.”

The Master Builders Association of King and Snohomish County added their voice to the growing concern by writing an open letter to county leaders. In it, the MBA (the oldest and largest association of its kind) said county leadership has not successfully addressed the housing supply-demand imbalance, stating:

“If the median income household cannot afford the median priced house, there is an imbalance that adds pressure at every income level, and too often is devasting for households with incomes below the median.”

The MBA urged local leadership to take several actions, including:

• Ensure zoned density, once established, can be built
• Recommit to Growth Management Act housing targets and recognize those targets are more than the minimums
• Increase zoned density through multi-family housing in neighborhood commercial districts and along key arterials
• Allow and encourage accessory dwelling units and detached ADUs in single-family zones
• Ensure that policies and regulatory environment do not add cost and delays that have the contradictory effect of increasing housing costs
• Maximize heights and zoned densities in Sound Transit station areas to leverage our region’s $60 billion public investment in transportation infrastructure.

Many of these steps are being taken but it is also true that a greater commitment to maxing out these actions will go a long way to help increase the number of homes available.

APRIL HOUSING UPDATE

• “I would say that this is definitely the first time we’ve seen properties sell as quickly as they have in our data history,” said Danielle Hale, chief economist at realtor.com. “It’s pretty historic.”
• “The time between coming on the market and going off the market is the shortest I’ve seen in the last 40 years,” said Dick Beeson, a Tacoma-area broker.

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Those comments – both nationally and locally – paint a picture of high-intensity buying and selling this spring. Yes, the market around King County remains hot but there are hints of cooling (okay, from 90 degrees to maybe 88).

The county saw new listings and end-month Active listings rise but Pending sales slip, suggesting buyers are no longer snatching every listing on the Northwest MLS as they become available. Median sales prices were mixed, up slightly for single-family homes and down for condos across the county. Total inventories were little changed from March to April.

The most promising figure – 25% – was the increase in total Active listings in King for single-family homes and condos combined from March (1769) to April (2212). Even better, there were 41% more Active single-family homes listed on May 1 from April 1 in the county – but only 1380, or about 43% fewer than a year ago. Yes, this market has a long way to go to return to balanced.

The surge in Active single-family-home listings came from Southeast King, with a jump of 69% more For Sale signs (266) at the end of April from end of March. Seattle experienced a 23% rise in end-month Active single-family listings (613). That explains the mixed report on Pending sales for the month, down 1.5% in Southeast King, up 2.8% in Seattle and down 3.2% on the Eastside. This should translate to a slower rate of sales in next month’s report.

April single-family closed sales jumped 16% from March to a median price of $830,000, or a 1.0% rise from the previous month’s sales price and a 16% climb from a year ago. Southwest King County (29%) drove the month-to-month rise in sales, with help from Southeast King (23%), the Eastside (21%) and Seattle (7.0%).

Median prices on single-family homes were also a mixed bag. Prices were down from March to April on the Eastside by 3.7% ($1,300,000), led by a 23% decline in the area located West of I-405, including Medina, Clyde Hill and parts of downtown Bellevue ($2,700,000). Prices rose 6.1% from March in Seattle ($875,000), driven by a 25% surge in Magnolia/Queen Anne ($1,367,500) and an 11% gain in SODO/Beacon Hill ($687,000).

The county’s condo market showed a similar pattern, with prices falling 9.6% on the Eastside ($520,000) but soaring 38% in North King ($433,500) and 24% in North Seattle ($379,750). Seattle condo prices dropped 1.0% to $490,000. Overall, new (6.7%) and Active (4.9%) listings were on the rise from March, with Pendings down 3.6%.

Total inventory levels for the county were little changed (0.7 month from 0.6), with single-family homes rising to 0.5 from 0.4 and condos remaining unchanged (1.1). Seattle single-family home inventory rose to 0.7 month from 0.6, with the largest number of available homes on Capitol Hill and in the Central District (1.1 months). Condo inventory in Seattle slipped to 1.7 month from 2.0 in March, with downtown/Belltown holding the largest share (2.7).

The median number of days all listings sit For Sale in King County is 6, down from 13 at the start of the year. It’s only 5 days on market in Pierce County and 6 in Snohomish and Kitsap.

In addition to King County’s 1.4% median price month-to-month increase on all home types, to $750,000, Kitsap (7.8%; $485,000), Pierce (4.3%; $490,000) and Snohomish (3.7%; $630,000) saw significant gains in the past month. Single-family home prices in Snohomish have appreciated the most in our region this past year, rising 29% ($675,000), with Pierce (23%; $500,000) and Kitsap (23%; $490,500) right behind, and King at 16% ($830,000) above April 2020.

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