Could Millennials be holding metro Phoenix’s new home market back from finally recovering?
Most of this huge generation of young adults haven’t bought homes yet, and the Valley’s home-building market still hasn’t recovered from the crash.
Housing market watchers, including myself, have been a bit obsessed with where and how Millennials, born between the early 1980s and 2000s, live. That’s because, like the baby boomers, it’s a huge group that can shift and reshape growth.
Lower-than-normal new home sales
Although the Valley’s home-building market is on the mend and in 2017 had its best year in a decade, new home sales are at about at half of what they were during the pre-boom and bust years.
Millennials have, so far, been slow as a generation to take on a mortgage and a new house. But they've also faced some unique obstacles:
- They hit the workforce during the Great Recession, and many had to move back in with their parents.
- Far too many of the nation’s almost 80 million Millennials are dealing with a record amount of student loan debt that’s keeping them from saving enough for a down payment to buy their own home.
(And we Gen-Xers thought we had it rough.)
But housing experts say that may be starting to change.
“New home sales have gone straight up over the past two years with 18,000 (in metro Phoenix) during 2017,” housing analyst Jim Belfiore recently told a crowd of more than 1,000 people tied to the real estate industry at his annual market update.
And he predicted that number will continue to climb.
"Millennials waited and waited to buy, but we are finally starting to see this huge group come into the market," he said.
Student loan vs mortgage payments
Holding many Millennials back from buying is a monthly school loan payment often bigger than a mortgage payment.
“There’s tons of pent-up demand from Millennials who became frugal, stayed at home with mom and dad and worked on paying down student loan debt,” said Arizona economist Elliott Pollack at the forecast.
The monthly payments many Millennials owe on school loans would buy some pretty nice homes.
About $300,000 in student loan debt comes with a monthly bill of almost $3,200. That’s enough to pay the mortgage on a $666,000 house, according to Pollack.
The monthly payment on $100,000 in student loans is about $1,100, enough to pay a $222,000 mortgage. The Valley’s median home price is about $250,000.
About 55 percent of Millennials aren’t buying homes because of student loan debt, according to the National Association of Realtors.
That’s why Millennials are renting about six years longer than their parents.
But the oldest Millennials are in their early 30s now, and housing market watchers think they are getting ready to settle down, get married, have kids and buy a home.
'Millennials wait until they are ready'
“I am a contrarian about Millennials,” Sheryl Palmer, CEO of Scottsdale-based Taylor Morrison Home Corp. told the crowd at Belfiore’s forecast. “I see them getting married and having kids and buying homes.”
Taylor Morrison is one of the biggest home builders in Arizona and the nation.
Palmer said about 25 percent of Taylor Morrison’s buyers are Millennials, and many of those are moving up and buying their second home.
“Millennials wait until they are ready, and they process things differently,” she said. “But when they are ready, they move fast, and many are buying in the burbs in places like where they grew up.”
Ready to buy
Belfiore’s forecast is for new home building to climb again in metro Phoenix this year because more Millennials will buy.
I met a new neighbor Saturday, a Millennial father who was taking his six-year-old daughter around selling Girl Scout cookies. I couldn’t stop myself from asking him why he just bought.
“We were tired of renting and moving around,” he told me.
I was so happy to hear that, I scrounged every dollar out of my wallet to buy more boxes of cookies.