It seems no city, large or small, was exempt from the record-setting price increases in homes over the past two years. The median price of single-family existing homes rose in 99% of the 183 markets tracked by the National Association of Realtors (NAR) in the third quarter of 2021.
So who is driving this booming real estate bus? In short, millennials, and they're upending the industry in the process.
A recent study revealed that overwhelmingly, homeowners and recent homebuyers of all generations say owning a home is more important to them now compared to two years ago. However, millennials topped the chart, with 80% saying owning a home is now more important than before the pandemic.
The findings are from the Emerging Real Estate Trends 2021 National Study that surveyed more than 2,000 people who plan to buy or sell a home in the next year or who have bought a home in the last year.
“Owning a home is still an important component of a strong financial plan.”- David Garcia, Albuquerque regional manager at BOK Financial MortgageSM
In fact, 87% of respondents believe people should be homeowners, or trying to be homeowners, by the time they reach 40. Enter millennials, the oldest of whom are in their early 40s, and are already a powerful economic force. Their overall spending power has outpaced baby boomers, and they represent the largest segment of homebuyers among all age groups.
And, the number of millennial homebuyers will continue to increase in the coming years as younger millennials, who are still in their mid-twenties, advance in their careers and start families.
"Housing demand is strong across the board, both among first-time home buyers and those moving up into larger houses. We have even seen a demand increase for high-end homes and property," explained Garcia. "In the Albuquerque market, prices have increased by 30% over the past three years. People are leveraging that equity to move up into nicer houses."
A generation of savers
Millennials are putting their money where their mouth is when it comes to savings. According to the national survey, 77% of younger millennials (ages 26-34) have a weekly, monthly or yearly savings goal, and 64% of older millennials (ages 35-44) reported saving more since the start of the pandemic—more than any other generation.
Still, many potential homebuyers are encountering hurdles along the way.
For starters, the survey found that 77% of homeowners and homebuyers are concerned about overpaying for a home. Property taxes, home maintenance costs, monthly mortgage payments and the down payment topped the list of concerns.
It seems consumers are right to be uneasy. The latest S&P CoreLogic Case-Shiller Index, which tracks residential real estate prices, found the average U.S. home prices rose 19.1% between October 2020 and October 2021, far outpacing the 4% historical average.
“Sustained low-interest rates and an inventory shortage, created a boost in demand for homes and caused prices to increase.”- David Garcia, Albuquerque regional manager at BOK Financial Mortgage
Inflation and supply chain issues are also playing a role in price increases, particularly in new home construction and home repairs, said Julie Haddock, senior home loans market leader for BOK Financial Mortgage in eastern Oklahoma and Arkansas. "Five million homes were underbuilt because of delayed construction related to supply chain issues. Once everything resolves, we will likely see a new construction boom, which should increase inventory and slow price growth."
What to expect in 2022
When asked what is important in shopping for a new home, 85% of study respondents cited low interest rates as an important factor—but they’re expected to go up.
"Interest rates will rise in 2022. The projections indicate a 30-year fixed mortgage will be 4% by the end of 2022," said Haddock. “So now may be the time to get off the fence before rates increase.”
For a $300,000 loan, each 0.25% interest rate increase raises a mortgage payment by $42 a month, added Garcia. Tired of bidding wars and feeling exhausted by the pace of the housing market, some are deciding to sit out for a while.
However, would-be homeowners are stuck between a rock and a hard place as they fear being priced out of the market, but rental prices also continue to climb.
"Rent prices increased dramatically in 2021, up 20% in some markets," said Haddock. "Owning a home is like implementing your own rent control. Renters are paying for their landlord's mortgage but won't see the profits from the increases in the property value. For those who can pursue home ownership, they may as well reap the benefits."
The new year may bring good news for homebuyers. The colossal price surges seen last year began to wane at the end of 2021.
“Now may be the time to get off the fence before rates increase.”- Julie Haddock, senior home loans market leader for BOK Financial Mortgage
What is still under hot debate is what home prices will do in 2022. Freddie Mac and Fannie Mae both foresee home prices continuing to grow, though not at the rates they have been. They estimate 2022 home price growth to be 7% and 7.9%, respectively. NAR expects a more modest 5.7% increase this year.
"The best time to buy a house is whenever you are ready. If you wait, the price of housing could go up, or interest rates could increase—or both," said Garcia.