Millennials emerging from the pandemic with extra savings are putting that money to use in the housing market.
“A lot of millennials, through the pandemic, actually moved home with their parents and saved a lot more money,” CJ Dalton President Taryn Byron told Yahoo Finance Live. “They weren’t going out and spending discretionary income because there was really nowhere to go. So all of that additional savings helped millennials, and now they have a big COVID piggy bank.”
In turn, they used some of these savings to purchase homes. A Redfin survey found that 31 percent of millennials credited extra savings from the pandemic with allowing them to afford their down payments.
Millennials will likely need those savings when entering the housing market in 2021. The S&P CoreLogic Case-Shiller national home price index rose 13.3% in March from last year, far outstripping economists’ expectations.
“We’re also seeing one of the biggest changes in generational wealth from the baby boomers over to their millennial children,” Byron noted.
Inventory shortage will ‘not be caught up for a while’
The surge in home buying comes amid the backdrop of low housing sales throughout the nation. The market for single family homes has been a frenzy over the past year, with prices surging as a result of high demand. Yet total sales of new houses have continuously declined during the beginning of 2021. Existing home sales fell 2.7% last month, straying significantly from analysts’ projections of a 1 percent increase.
The pandemic and related shutdowns caused a decline in the construction of new houses, further restricting supply and driving up home prices. Relatively low levels of construction as well as other supply constraints such as high lumber costs have led some observers to question the fundamentals of the market.
“There is a shortage in inventory that is not going to be caught up for a while,” Byron said. Before the shortage can be addressed, however, new homes will have to be built. “And typically, if a developer secures a property now, it's going to be about two years for delivery on something like that,” she added.
“We’re seeing lower housing starts because construction wasn’t happening,” Byron said. Other factors, such as low interest rates and high lumber prices, also are affecting housing prices. “If you find the right home, buy it; don’t wait,” she said.