Demographics are Destiny in the Housing Market

By simple definition, this includes individuals and families that form a household and seek housing whether that is to rent or own. There is a predictable life cycle to this occurrence, which our culture and economy continues to shape. An example of that shift is the average first-time homebuyer, currently at 38 years old, was only 28-29 years old in the 1980s.

There are many contributing factors to these trend shifts but the bottom line is that there is a trend. And if we look forward on the current generations and work within moderate predictions on household formations coming to market, the sheer future demand for housing alone in the next decade will forever shape the future of real estate.

Generations and Their Home Ownership Rates

The very first observation you’ve likely already made is that the population of Millennials and Gen Z surpass the prior Gen X generation by several millions. The next observation is that you do see a very pronounced reduction in home ownership rates heading into the younger generations. However, even with reduced projections for the Millennials and the Gen Zs, the predictions still put a cumulative 25.5 million new homeowners in the next 10 years coming to market.

The Supply and Demand Imbalance

While the population continues to grow and new generational homeowners attempt to enter the market, the supply of new homes has not kept pace. The National Association of Home Builders (NAHB) reports a longstanding shortage of affordable homes, which has been exacerbated by rising construction costs, zoning regulations and a limited workforce in the construction industry. According to NAHB data, the U.S. is facing a shortage of approximately 3.8 million housing units as of 2023, a gap that has been widening for years.

Several factors have contributed to this shortage. After the 2008 financial crisis, homebuilders scaled back their production significantly. Even as the economy recovered, builders have been slow to ramp up production because of persistent labor shortages, escalating material costs and stringent zoning laws in many urban areas. A 2022 report from the U.S. Census Bureau found that fewer than 1 million new homes were built annually between 2010 and 2020, far below the 1.5 million to 1.6 million homes needed to keep up with population growth and demand.

In fact, many builders have been focusing on higher-end properties to maximize profits, while the construction of entry-level homes has lagged. This has left a significant gap in the market, where millennials and first-time homebuyers are increasingly frustrated by the lack of affordable options. According to the NAR, the median home price in the U.S. has risen by 40% over the past five years, driven largely by this shortage of entry-level homes.

This supply-demand imbalance is poised to persist for the foreseeable future. Despite all other influences, the pressure from an increasing number of new households alone, especially in the desirable communities of Northern Arizona, will likely keep home prices high. While I know that’s not news many were hoping to hear, I believe it’s valuable to help prompt thoughtful action on ensuring your household can make decisions supported by future projections in order to achieve your brightest future within the variables you control! FBN

By Chris Hallows

For additional information or to schedule an appointment visit ChrisHallows.Benchmark.us or call 928-707-8572. The Flagstaff location is 824 W Rte 66 Suite A-3.

Chris Hallows is the Branch Manager & Sr. Mortgage Advisor of Benchmark Mortgage Flagstaff.

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