Demographics are Destiny: Why Home Values Will Rise Over Time

The media continues to beat the drum about doom and gloom in the housing market. Yet a deep analysis of current supply dynamics along with consumer demographics shows that home prices should be well supported into the future. Let’s break down the details.

First, when we look at the supply of homes, inventory remains tight. While we have seen an increase in available homes for sale versus a year ago as measured by active listings across the country, this growth is from very low levels and supply is still much less than it was pre-pandemic.

One reason for the ongoing tight supply is the “lock-in effect.” Many homeowners who “locked-in” low-rate mortgages during the pandemic have chosen to stay in their homes when they otherwise may have moved. This has limited the supply of existing homes for sale in recent years. Home builders, meanwhile, have been underbuilding for over a decade since the Great Recession.

At the same time, the population has been increasing due to birth rates and immigration. All these factors have helped contribute to the housing supply crisis we are currently experiencing.  

So, what’s ahead for housing demand moving forward?

The chart below shows the current population and homeownership rates for Baby Boomers, Gen X, Millennials, and Gen Z. We can see that the percentage of people who became homeowners by age 30 has fallen over time, which makes sense as people are taking longer to get married, have kids and buy a home. Millennials also may have been impacted by the Great Recession, which made it harder for many to find a job upon graduation.

Now, looking at people ages 25-35, who are mostly Millennials, 17% or 8 million are still living at home with their parents – the highest level since 1941. Of these 8 million people, 55% (or 4.4 million) should be homeowners by the time they are age 40 based on the Millennial homeownership rates.

Meanwhile, Gen Z includes 69 million individuals between the ages of 12-27. Their homeownership rate is only 8%, mostly because they are so young. But over the next 10 years, if they follow Millennials, we should see that increase by roughly 25% to 33%. In other words, 17 million of them will be purchasing a home, which is significant in terms of demand.

This means that together, we should see Millennial demand of 4.4 million and Gen Z demand of 17 million over the next several years – which is significant. And this data does not count renters who transition to homeowners or immigration.

The bottom line is that the pent-up demand for homes combined with ongoing tight supply continues to bode well for housing as an investment and continued home price appreciation over time.

Do you want to benefit from analysis like this daily?

Investing in an MBS Highway membership – where you'll have access to tools like our Bid Over Asking Price, Buy vs. Rent Comparison, Loan Comparison tool, daily coaching videos, lock alerts and more – means you'll have everything you need to turn prospective homebuyers into clients and become the type of advisor they need to guide them in today's market and for years to come.

Take a free 14-day trial of MBS Highway and see for yourself how we can help you grow your business and benefit from the opportunities ahead.

By The MBS Highway Team