Chief Economist Fannie Mae explains how millennials changed the housing market last year

Real estate watchers could be forgiven for feeling a bit of a whiplash. Since the first major news about the community spread of COVID-19 in America around this time last year, we’ve been through a complete economic shutdown, a refinancing boom, and what looks like a complete market overhaul. A generational shift in buyer preferences that should have taken a decade has happened in a year – and the mortgage industry is questioning whether it has managed to weather this storm intact and ready for the future.

Fannie Mae’s chief economist, Doug Duncan (photo), gave MPA a look at the year the industry has just had. He explained how and why trends in home buying preferences were accelerated by the pandemic and highlighted others that were directly caused by it. He explained that the history of today’s housing market is written by millennials. It’s a story, he explained, that has its roots in the end of the great financial crisis.

“Looking at the end of the financial crisis, when millennials were deciding where to live,” said Duncan, “in the expansion that followed the crisis, employment first picked up in urban centers. This was the most concentrated urban job growth of any recession since World War II. The stories of millennials who wanted to rent because they saw the damage from foreclosures were completely untrue. They rented because their jobs were in city centers where they weren’t building single-family homes.

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Duncan noted data from a survey conducted by Fannie Mae from 2010 that found that about 90% of millennials said they wanted to own a home someday. They were renting in downtown areas because they first needed to find a job, advance in their careers, and pay off student debt before moving to the suburbs was an option.

While this millennial move to the suburbs has been a major story of the past year, Duncan pointed out that it did not start in 2020. There had been a gradual emigration of young people from inner cities for two or three years. years before the pandemic. , according to Duncan. As with so many others, the pandemic has accelerated an existing trend.

As the virus accelerated emigration, Duncan noted that it also could have derailed or delayed the expected urban return of baby boomers with empty nests in the suburbs. He noted a recent article from the Cleveland Fed which showed that while urban immigration had generally moved in the same direction as emigration since 2010, in 2020 migrant inflows declined as migrant outflows increased. . Time will tell if this trend will continue.

Duncan expects urban history to be told through amenities and jobs in the future. If restaurants, theaters, and major city lifestyle attractions come back diminished after the pandemic, or don’t return at all, a major attraction will disappear. Additionally, if jobs no longer require workers to come to the office five days a week, the incentive to live further away may become even stronger.

The rise of remote working could also answer the question that many players in the housing market have asked: Will the four-bedroom plus homes of the baby boomers sell to millennials who have far fewer children? ? Since house prices are set for dual income families, Duncan thinks we can expect a millennial family to want up to two office spaces in the house. This need could absorb this large suburban housing stock.

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The simple arithmetic of affordability underscores all of these other desires of millennials. Not only is housing more affordable outside of city centers, many companies are moving their operations to smaller regional centers where people they can afford to hire can, in turn, afford to live. The ongoing story in Texas, Duncan noted, has to do with how low-cost properties might be developed in that state for much of the past decade. He cited a telling piece of information: the rental price of a rental van. Renting a van from Dallas to San Jose is much cheaper than going from the hyper-expensive Silicon Valley hub to the sprawling Texas subway. This rental price, Duncan said, tells you where people have gone.

Ultimately, this shift in buyer preference and the reshaping of the housing market is due to relatively small individual decisions. For so many millennials, the COVID-19 pandemic has been an opportunity to take a few more steps in their lives. They took it and the market fundamentally changed as a result.

“The people we saw moving to the suburbs through our app data were renters buying homes,” Duncan said. “In our system, we could see that they were buying in a less dense area. Millennials who took a job with JP Morgan, or something, in 2011 had paid off their debts, found partners, and were ready to buy a home over the next few years. COVID-19 hit and they said ‘well I was going to do it in two years but I am going to do it right now’. “

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