Markets in the South and West will experience the highest housing activity in 2020, as more millennials move out of big cities in search of more affordable markets, according to experts who shared some of the latest industry trends during last week’s International Builders’ Show in Las Vegas.
“Millennials will dominate housing in 2020 and account for 50% of mortgage originations,” said George Ratiu, a senior economist at realtor.com. He added that they will be leaving expensive metros for more affordable markets.
“Millennials will be moving to mid-sized cities like Boise, Idaho; Tucson; Chattanooga, Tennessee; and Columbia, South Carolina. These cities offer good weather, suburban downtowns and lifestyle amenities.”
Looking at this key demographic more closely, Ratiu said:
- 1-in-4 millennials have been looking for a home for more than a year.
- 16% are searching for homes in urban areas.
- 34% are looking for homes in the suburbs.
- 45% are seeking homes in small towns and rural areas.
Summing up his findings, Ratiu said that in 2020:
- Millennials will demand an affordable product.
- Mortgage rates will remain attractive.
- Lesser markets will shine.
- Baby boomers are not moving.
Ali Wolf, director of economic research for Meyers Research based in Costa Mesa, California, also noted that boomers are staying put.
“Boomers [say] they are not selling because ‘we don’t need to.’ Only 17% of boomers are dissatisfied with their current home,” said Wolf.
Other factors that are keeping boomers at home are that 23% have no retirement savings and 30% of those in the 62-66 age range have postponed retirement.
As for millennials, they are also facing affordability and supply constraints. “Affordability is the biggest obstacle to buying a home,” said Wolf. “Only 5% of millennials want to rent. They are the largest buyer demographic but faced with a supply shortage.”
Looking at public and private builders, Carl Reichardt, managing director at BTIG headquartered in San Francisco, said that 8-out-10 private builders expect sales will rise in 2020.
“Labor and land costs are their biggest worry,” he said. “Builders still appear cautious on pricing. Very few are raising prices aggressively.”
Meanwhile, Reichardt said that public builders account for 36% of all new homes in the U.S. market. (NAHB data show the top 20 builders accounted for 29% of all single-family starts in 2018.) Among the top 50 markets in the country, Reichardt said a public builder is No. 1 in terms of volume in 36 of these markets.
Reichardt said that public builders are not looking to get into all markets but instead are focusing on local market share in the metros they are currently engaged in.
NAHB Chief Economist Robert Dietz, who moderated the session, said that while the industry continues to face significant labor issues on the supply side, 2020 might be the year that labor shortages stop getting worse.
For more on the economic impacts of housing, visit nahb.org.