In a booming housing market, starter homes run dry, causing huge pains for those who want them most—the millennials. This generation has reached the highest peak for first-time homeownership, which further fueled the pandemic housing boom. Meanwhile, others have become ultra-ambitious by turning to real estate agents to search for luxurious properties in vibrant states.
According to economic analysts, the shortage of starter homes in the U.S. is one of the biggest obstacles to economic recovery. One of the powerful drivers in real estate is the increasing demographics of millennial homebuyers. The population surge of millennials has driven the demand for rents and starter homes, but builders are trying hard to keep up with the demand as they haven’t built enough apartments and properties in certain markets.
Before the pandemic housing boom, real estate was already facing a steady housing shortage in recent years. This has put significant pressure on first-time homebuyers as they find affordable starter homes. To shed light on the worsening housing supply, this article will take a look at some suspects behind the shortage of starter homes and possible reasons.
Boomers refuse to move
According to realtor.com, there’s not much incentive for the older population to encourage them to sell their properties. One major reason is economic uncertainty.
The COVID-19 pandemic has resulted in huge financial challenges and loss of jobs, which affected people’s financial sources. As a result, older adults refuse to move homes to avoid the associated costs of moving from one property to another. But for millennials to score starter homes and for Gen X to move to the next home, boomers have to sell their properties.
Besides boomers, many generations are choosing to stay put. Before, owners used to stay in their homes for six to seven years, whereas the average homeowner in 2019 stayed in their house for 10 years before deciding to sell it. The common motive why people sell homes in previous years was to switch jobs or look for a new home to meet the changing demands of the family.
Today, people choose to sell homes only because they want to live closer to their family and friends. But because of social distancing restrictions, homeowners are refusing to leave their homes for health and safety reasons.
Compared to other generations, baby boomers are much slower when selling family homes, which further worsens the housing supply in real estate.
Low mortgage rates
In recent years, outstanding mortgages had an average interest rate of 3.9%. This led homeowners to enjoy historically low mortgages rates and refuse to surrender them for newer homes. But if mortgage rates will rise again, this will urge homeowners to stay in their homes longer.
Although mortgage rates are still at all-time lows during the pandemic, homeowners still refuse to leave their homes. Plenty of factors influence this, such as financial uncertainty, slowed construction, the changing job market, and potential risks of infection during home tours.
This means the current state of mortgage rates can play a big role in every homeowner’s decision to stay or move out of their homes.
Home construction is at a halt
Amid the pandemic outbreak, homebuilders are slowing construction because of shortages in skilled labor and land and skyrocketing material prices. Single-family housing began dropping by 13% in April 2020. It was the sharpest recorded decrease since the economic shutdown caused by the pandemic.
Nearly half of homebuilders blame the difficulty in obtaining lumber and other construction materials, including the labor issues. Families are also calling for cancellations because of the skyrocketing costs of building single-family homes. Some contractors include escalation clauses to sale prices to support the increasing material costs. Escalation clauses state that if construction materials increase, the client is responsible for covering the new prices.
Besides the increasing cost of building materials, construction employment has also affected production. The construction industry faces a labor shortage that began stalling in April and dropped even further from its pre-pandemic peak. Contractors are dealing with unprecedented pressure in supply-chain disruption, worker shortages, and cost increases, which kept firms from hiring the required workforce. These issues will make it even challenging for contractors to regain their footing after the pandemic.
Given the many factors concerning housing shortage, millennials who plan to be first-time homeowners should be more persistent and patient when looking for their dream homes. Homeownership is a critical part of wealth building and financial security, so it’s important to take your time before jumping into the real estate world.