Can patience and a housing boom ease millennials' homebuying crisis?

Owning a home is proving to be a tough hurdle for millennials. Those born between 1981 and 1996, are facing challenges in purchasing homes. Coming in at 72 million, millennials have now surpassed baby boomers to become the largest generation in the nation. The vast group and high demand for housing has led to inventory shortages and price increases, making homeownership unattainable for many.

This tidal wave of demand quickly overwhelmed an already tight housing supply. "Millennials represent a vast pool of new homebuyers at a time when new construction and listings have lagged well behind population growth," said Ralph McLaughlin, a housing economist. "Their numbers ensure intense competition and upward pressure on prices."

The typical millennial net worth doubled in just five years, from $54,000 in 2017 to $115,000 by 2022 based on Federal Reserve data. More financial flexibility meant more young adults could pursue the dream of homeownership. But with their ranks so large, that dream turned into a nightmare scenario of frenzied bidding wars.

"It's the ultimate cruel irony - millennials wishing for homes helped ensure far fewer could actually afford them," McLaughlin said. "Their demand pushed housing costs into the stratosphere just as they were finally getting equipped to buy."

While mortgage rates dipped in early 2024 after a year hovering above 7%, the damage was done. Home prices in many markets remain severely inflated from the millennial-driven spike in demand over the past half-decade. The national median home value hit a record $416,000 in September 2023 according to Zillow data.

With down payments often exceeding $80,000 in pricey coastal areas, even flat mortgage rates can't offset the heavy burden of millennial student debt or make homes pencil out for modest millennial incomes capped by factors like underemployment.

To improve their chances, a growing share of millennials began sidestepping the traditional 20% down payment. Roughly 44% put down less than 20% when purchasing in 2022, up from 35% just five years prior based on Zillow's mortgage data.

While lowering the homeownership barrier, this practice further stoked demand and easy lending standards akin to those enabling the 2000s housing bubble. The very catalyst for millennial buying power also perpetuated conditions that threaten to price this generation out indefinitely.

"We could be witnessing a reprise of the last housing crisis, but with a plot twist where the victims are the same perpetrators," McLaughlin warned. "Millennials dictated market conditions through their numbers and choices, only to become trapped by them."

Millennials aren't entirely to blame for their predicament. Many systemic factors converged to limit housing inventory during their prime purchasing years. Developers constructed fewer affordable starter homes after the 2008 housing crash. Older owners became housing load hoarders by aging in place across millions of entry-level properties.

Combined with millennial demand, new home construction lagged far behind household formation for over a decade. From 2010 to 2019, construction fell 5.5 million units shy of new households created according to Census data.

This supply crunch grew more acute starting in 2020 when existing homeowners rushed to leverage low interest rates and refinance. With home equity locked in, they shelved plans to sell and list properties, removing inventory from the glutted millennial marketplace.  Heading into 2024, just 980,000 existing homes were listed for sale nationwide - one of the leanest supplies on record.

"The lack of resale inventory transformed millennial homeownership from lofty goal to Mission Impossible for many," said Nadia Evangelou, a senior economist studying housing trends. "It's the sad irony of their timing - millennials came of homebuying age just as markets became inhospitable to millennial buyers."

Another blow came from the nation's repressed homebuilding levels. Haunted by the 2000s foreclosure crisis, developers tilted toward higher-end properties and luxury apartments catering to wealthier borrowers rather than constructing affordable housing for first-time buyers.

Annual housing starts averaged just 1.2 million over the past decade, far short of the 1.5 million minimum required to alleviate shortages. New construction lagged well behind even sluggish household formation rates that failed to account for the millennial wave.

With limited salaries and student debt weighing down many in this generation, millennial demand concentrated at the entry-level - the precise slice of the market starved by underbuilding. Starter homes grew scarcest just as young adulthood swelled the rookie buyer ranks.

"Even if developers flooded markets with affordable inventory today, it couldn't meet decades of pent-up millennial demand," said Evangelou. "The window may already be closing on homeownership chances for many in this cohort."

Some economists predict a housing price correction could arrive by the 2030s when baby boomer homeowners start downsizing or passing away en masse. As that demographic wave crests, a potential homes listing tsunami could alleviate shortages that have priced millennials out.

Yet with a median age of 42 by 2030, many peak millennial homebuyers may find the temporary price reprieve too little too late. Life milestones like marriage and children can't be deferred indefinitely awaiting affordable homes.

"For many millennials, the stratospheric home costs they helped drive could very likely persist through the rest of their purchasing cycles," said Evangelou. "The housing opportunities they destroyed may never return for their generation."

So was the largest generation's pursuit of the American Dream merely a paradox fated to cannibalize itself? Did overzealous millennial demand for scarce homes ultimately rob them of those very assets needed to afford coveted homeownership?

Or will patience and a listing surge loosen millennial housing gridlock before it's too late? Solutions remain elusive for millennials trapped in a frantic, self-inflicted, and perhaps self-defeating cycle.