Experts say the housing recession that dogged new home production from the second quarter of 2020 through the end of 2022 is over. But the scars of higher home prices and mortgage rates have left millennials with a bad taste in their mouth. That’s according to a survey conducted by Redfin Corp., a Seattle-based residential real estate brokerage and mortgage origination provider. Among the nearly 2,000 millennials responding to the company’s survey, one in five said they believe they will never own a home. About half of Gen Z and millennial respondents who don’t plan to buy a home in the near future say it’s because they’ve become too expensive. About a third pin the blame on interest rates. In 2023, the 10-year treasury rate rose to around 5%; mortgage rates reached nearly 8%.

Meanwhile, according to data provided by the U.S. Census Bureau and U.S. Department of Housing and Urban Development, the average sales price of houses sold for the U.S. clocked in at $513,400 in October 2023.

The housing affordability crisis impacts Gen Z’ers and millennials, especially, because they’re much less likely to own a home and to benefit from increased equity, compared to older generations, says Redfin chief economist Daryl Fairweather. They also lack profits from a previous home to offset the increased costs of a new home, Fairweather points out.

At the same time, a shortage of homes compounds the issue, says Abbe Will, senior research associate and associate project director of the Remodeling Futures Program at the Harvard Joint Center for Housing Studies. Affordability can be blamed, in part, on a lack of new home inventory and inventory of homes in general, Will says.

“For many, many years, we’ve under built in the U.S., and that has certainly caused some portion of the massive growth that we’ve seen in house prices in recent years,” she says.

And with more millennials and Gen Z’ers continuing to rent, in the near-term, at least, the remodeling industry is expected to take a hit, Will adds.

“Those first-time [home] buyers, they are the future remodelers—the future homeowners who will be doing remodeling projects,” she says. “If they’re getting into home ownership later in life, that certainly changes their lifetime trajectory for remodeling projects, to some degree.”

With a direct correlation between home sales and remodeling activities, it’s expected that the market for renovations will drop in 2024 by around 7.7%, Will says. At that rate, the market is expected to settle at around a 2% growth rate for the year. While that’s “much, much lower than what we had been seeing the last several years, it’s still growth,” Will points out.

Coming off of a pandemic-induced boom, when spending for improvements and repairs increased by 10% to 20%, a decrease in remodeling activities in 2024 might come as a shock to some, but it’s also expected to be short-lived, she says. It’s also possible that projects such as door and window replacement could fare just as well in a downturn as they did prior, as homeowners switch their attention to larger projects, she suggests. “We think that it will be a slightly different mix than what we saw during the boom of the pandemic,” Will says.

While the renovations market takes a rest in 2024, construction of new homes is expected to pick up, says Robert Dietz, chief economist for the National Association of Home Builders (NAHB). NAHB is currently forecasting around a 4% to 5% growth rate in 2024 for new home starts. “Then, in 2025, we think that growth rate will accelerate to about 7% to 8%,” Dietz adds.

With interest rates expected to drop and inventory of new homes rising, “I think the back half of this decade looks pretty good and there’s a pretty good runway for homebuilding and all the associated industries connected to residential construction,” Dietz says. “We have a large number of millennials who are going to be looking to buy single-family homes.”

For a more in-depth look at the outlook for remodeling and new home construction, see the upcoming annual forecast in [DWM]’s January-February edition.

1 Comment

  1. House builders contribute to this by providing opportunities for people to invest in and own property, which can appreciate in value over time.

Leave a Reply

Your email address will not be published. Required fields are marked *