Why a Housing Shortage for Millennials? Affordability and Fear

Suzanne O'Halloran of FoxBusiness recently wrote about Federal Reserve Chair Janet Yellen's downbeat outlook on housing.  Coupled with an interview with Former Reserve Chair Ben Bernanke, one area highlighted was that new construction has slowed creating a shortage of homes for millennials.  

Explaining why, David Crowe, chief economist at the National Association of Home Builders (NAHB) suggested the reason is due to low lending from skittish community banks and millennials that "either can’t or don’t want to own.” 

Setting Mr. Crowe's comment about the desire to own a home aside (which we believe most people still dream about), the main issues are with affordability and fear in homeownership.  

On the affordability side, many government policies have been created to help new homebuyers.  But, that doesn't necessarily mean that millennials or other homebuyers can afford a newly constructed home.  Instead, they may need to buy an existing home that can carry a lower price.  

This gets us to the fear part.  Existing home inventory is tight as many current homeowners are fearful of jumping into a new home after the financial crisis.  These previously "stuck" homeowners who saw there home values drop below what they paid, need time and reassurances that the bubble wont impact them again in order to get back into the real estate game.  These move-up buyers can be a real growth engine for builders and the local banks that support them if they can b convinced.

Mr. Crowe added “Damage to the economy and housing [during the financial crisis] was severe; it’s just taking longer to rebound."  We agree.  Time creates more experience and helps innovation flourish.  Developing the first down payment protection program (+Plus by ValueInsured) to eliminate homebuyer fear and to get them off the sidelines and into new homes took time. Learning from the mistakes of the past to reset how we buy homes took time.  Developing more transparency and inserting greater fairness into the mortgage process took time.  But all of this time adds up to today.  

We think 2016 is going to be a great time to buy a home.  Once all of the pieces fall in place, the engine will roar stronger than ever.