Real Estate Makes Millennials Cry? | The Real Estate Situation

June 14, 2022

Real Estate Makes Millennials Cry? | The Real Estate Situation

I’ve got two things for you.

First, a survey by Zillow shows that Millennials cried through the process of purchasing a home or trying to purchase a home.

The second one shows what metropolitan areas are going to increase or continue to increase in 2022 and parts of 2023. So, if you are looking to purchase a home, you have an idea of what areas you can go to, and you know what’s going on. The data is according to one economist [Ed Pinto].

Millennials cry during home buying

The first article I want to share with you is by Fortune, and it talks about how the housing market is making millennial buyers cry. According to the survey Zillow conducted, for these [around 2300] millennials, home shopping is a very personal and emotional experience.

When I first saw this article, I was skeptical about whether it was true.

According to the article, “Half of the new homebuyers said the process ‘left them in tears,’ according to a new Zillow survey released Thursday, with Gen Z’ers and Millennials ‘far more likely to cry at least once during their home-buying journey,’ at more than 65% and 61%, respectively.”

I mean, at some point, I understand. Purchasing a home, especially for the first time, can be pretty stressful. The process comes with a lot of frustration for some buyers.

In addition, the article states, “It shouldn't come as a surprise. With inventory low and demand high, most homes receive multiple offers, and around half sell for more than their listing price, according to Zillow's most recent Consumer Housing Trends Report.”  

Part of the reason I started with this is that now we are seeing a slightly new market in different areas.

Home Price Appreciation

We also see appreciation continuing throughout this year in different areas.

I want to go over some information just to show you what they are looking at, and sometimes we forget about this. And this is important.

That information is talked about in this other article by Fortune titled “How fast will the housing market cool? Projections for 48 metro areas show when prices will start to fall.”

This is what it says: Most people don't take inflation into account at all when tracking the value of their homes. They rely on the headline dollar percentage increase or decline. If prices for similar colonials or ranches in their locale jump by double digits over the same month from the previous year, they don't subtract the corresponding rise in the Consumer Price Index to get the "real" increase.  

And it is true—a lot of us don’t take this into consideration, whether we’re on the consumer side and we’re purchasing homes, or we’re on the real estate side as real estate agents.

It is important to consider inflation when we are talking about appreciation. The article shows a graph showing both the total appreciation and the appreciation that takes into consideration the CPI (Consumer Price Index).

The AEI’s (American Enterprise Institute) Housing Center “offers detailed information on prices, appreciation, inventories, and numerous other metrics for those markets,” according to the Fortune article. “Its director, Ed Pinto, does provide an overall view of where national prices are going in the months ahead.”

This is a popular question I get asked by my clients a lot: “Tristan, where is the real estate market heading?” They are scared to buy because they are not sure what is actually happening with the recession and what the housing market would look like two to four years down the line if they bought a home now.

The truth is, none of us actually know what will happen [that far ahead]. That’s why I dig into research daily to get an idea, based on the data, of what is happening and form my predictions on what I think will happen based on that information.

If anybody tells you they know exactly what will happen, that’s not true.

According to Fortune, Pinto says fundamental forces will sustain a seller’s market, at least for now.

The following excerpt elaborates on this:

For Pinto, the easing of HPA doesn’t mean that prices, including real prices, will drop anytime soon. In fact, he believes several fundamental forces will maintain a strong market for months to come, though hardly the juggernaut of the last two years. Surprisingly, one big plus is that mortgage rates are still attractive. “Even though they’re two points higher than a year ago (at 5.5%), rates are low by historical standards,” says Pinto. Besides, he adds, they’re actually negative relative to inflation, making the monthly nut look like a bargain; families are often paying less on their home loans each year than the increase in their household incomes. For Pinto, it would take a surge in rates to between 6% and 7% to cool the market big time.  

Real prices take CPI into consideration. But I want to focus on the statement that mortgages are actually negative relative to inflation because I don’t think we’ve really talked about that. Even though the rates are slightly higher, they’re still negative relative to inflation.

It is also important to note that if the mortgage rates shoot up way past six and closer to 7% or 8%, then the housing market will have a problem. It is what I have been telling people, in my YouTube videos, and to my clients, for the past few months. Only when that happens can we be sure that we will see the demand and inventory get super unbalanced.

Right now, the demand is still there for the inventory that we have. The inventory for active listings is still significantly low, at 2.5 months, when the average is six months. The new construction inventory, however, is a different story, as they have nine months of inventory when the average is also six months.

“Second, Pinto points to the work-from-home revolution that has freed homeowners to relocate from expensive coastal metros to affordable Sunbelt markets and still collect their old salaries,” the article continues.

So, the first one, [Pinto] said, mortgage rates are still low—5.5% is not bad considering where inflation is at.

Second, he says the people who relocated to different areas are going to remain there, but I am not sure about that one, because we are seeing companies calling back their employees to work onsite. So we might have to see how this WFH to on-site shift will go.

And finally, the article says, “The third and most potent factor: incredibly low inventories. ‘We’re still seeing a supply-and-demand imbalance, and the reason is the incredibly low number of homes for sale,’ says Pinto.”

There is no Housing Bubble

Pinto says there is no [housing] bubble.

According to Fortune: “For the bubble to develop, you need to have irrational exuberance, a psychological component that prices are no longer driven by fundamentals. That’s not the case.” He points again to the amazingly slender supply. “In the bubble of 2005, the U.S. had 2.4 to 2.5 million homes for sale in a smaller market,” he says. “Now the number is a tiny 950,000.” 

Do you see a significant difference there in terms of inventory? So, don’t believe people when they say the housing market is going into a crash.

Home Price Appreciation Forecasts [Apr 2022 to Apr 2023]

According to Fortune, “45 of the 48 cities should expect both positive nominal and real gains.”

Nominal gains are what we technically see when a house goes up in value. Real gains factor into the CPI and inflation.

According to the graph presented in this article by Fortune, the one year “real” appreciation forecasts for April 2022 to April 2023, the metros that you might want to consider are the following:

There are other metros listed as well, such as Orlando, Nashville, Austin, Jacksonville, etc., but from the data, if you are looking to make a move, Florida is probably your best option.

According to Fortune, “Even in the absence of a recession or steep rise in mortgage rates, the most likely outlook after April of next year is that inflation outpaces price increases.”

So at some point, we’re going to get there, and I want you to pay attention when it happens. However, April 2023 is too far away to know what’s going to happen between then and now.

That’s why we should keep an eye out for the data on a month-to-month basis and look at the indicators for where the real estate market is heading.