Between 2008 and 2019, the U.S. saw its weakest cycle of new home sales and housing starts in history, while at the same time experiencing the most prolonged economic and job expansion ever recorded.
According to data from the National Employment Report released by ADP Research Institute and Moody’s Analytics, January 2020 marked yet another month of job gains in the U.S. — that’s 112 months straight.
Meanwhile, for those between the ages of 25 and 54, labor force growth has been increasing since a low point in 2015; the current labor force participation rate for that age range is around 83%. At the same time, a large number of 26- to 32-year-olds are coming into “homebuying age.” Nowadays, the current median first-time homebuyer age is 33, as opposed to 29 back in 1981.
Consequently, with 291,000 more jobs added in private sector employment from December to January – and continued growth in the job market in general – many potential homebuyers should be financially prepared to enter into homeownership in the near future.
Typical Path to Homeownership
For the most part, homeowners tend to follow a similar path to purchasing homes in the U.S. Although they may not get married first or purchase a home as early in life as older generations, this path to homeownership usually involves:
- Renting – leaving the family home and renting during college or at the beginning of a career
- Dating – looking for someone who may be a suitable long-term mate
- Coupling – finding the person who best suits a long-term relationship
- Marrying – committing to a shared life and future together
- Parenting – having kids (usually after about three and a half years of marriage)
- Buying – making a home purchase and settling down
Moreover, younger Americans – who are working longer and not experiencing a recession – will have enhanced financial capabilities when it comes to homebuying. Plus, dual-income households are also helping to boost the housing market more than ever before.
Wage Growth & Homebuying
The longest job expansion in the U.S. led to a tighter labor market, which means wage growth is stable year after year.
Specifically, among working adults in the country, those aged 25 to 54 have had continued wage growth – a 3.9% month-over-month increase in January 2020. Similarly, wage growth was 8.4% for 16- to 24-year-olds and 2.5% for those older than 55.
In addition to the large group of potential homebuyers coming up, there’s also a group of current homeowners who bought homes in the last 10 years and are now able to own the debt. This means that if they decide to move to a more expensive home, they are financially well-prepared to do so – particularly those who purchased a home between 2010 and 2016.
Housing Supply & Affordability
However, two factors that could influence whether potential homebuyers decide to purchase in the near future are housing supply and affordability. That’s because an increasing number of Millennials entering the housing market could cause demand in some cities to significantly outpace supply – especially in mid-range markets – possibly leading to increased prices. As a result, potential Millennial homebuyers could delay their purchases until the market is more favorable for them.
Along the same lines, single-family home construction is expected to increase by about 6% overall in 2020. This should provide a bit of relief, although existing housing stock will likely still be more abundant than new builds.
Overall, the influx of a new generation of buyers – who have been part of a prolonged job market expansion that has benefitted them financially – should equate to a crop of new homebuyers. As such, they’re expected to snatch up existing homes being sold by Baby Boomers who will be looking to downsize in the next several years.