Lifepoint Financial Design – LifePoint Financial Services – Mike Metzger Financial Planning

With the summer heating up, so is the housing market. Still!

Across the country, housing prices are continuing to soar, inventory is becoming even more limited, and there seems to be no end in sight! But how can this housing market be sustainable? Is it only a matter of time until we have a housing market crash?

It feels a little reminiscent of the 2007-2009 timeframe. Google has reported that the number of search queries for housing market crash 2021 have climbed exponentially. It’s a natural thought considering the housing price index is roughly 4-6% above the previous highs seen in 2006, just before the Great Recession.

As a financial planner who focuses on real estate professionals, I remember this time well.

However, we can’t necessarily assume that because the housing price index is at highs, the housing market equates to an impending crash. It’s not that simple.

There are many reasons why housing demand is as high as it is. And these reasons also justify why the market can continue to sustain these increased prices.

Let’s talk about the millennial generation first. Between “millennials the younger” and “millennial the elder”, they range in age between 22 years old and 40 years old. The millennial generation, contrary to belief, has been one of the most successful generations at saving money compared to other generations.

Many millennials lived at their parents’ home longer than previous generations. They also held off on large purchases, such as buying expensive cars and other luxury items. In addition, only 23% of 18-31 year olds are getting married and living in their own households, down significantly from generations past.

What am I getting at here?? Millennials have the money to buy a home. The average age of a home buyer right now is 34 years old…right at the median age of millennials. According to the National Association of Realtors, 82% of “millennials the younger” and 48% of “millennials the elder” are first time homebuyers in the market right now.

Another important factor to housing sustainability is seen in millennial incomes. Between the entire generation of millennials, in 2021, 34% of those individuals make between $100,000 and $125,000 in annual income. This is a strong indication of affordability of the homebuyer and likelihood of continued mortgage payments.

We also all know that interest rates are at historic lows, which makes the loan process easy and a clear no-brainer. I don’t need to dive too much into the details here, as I’m sure we’ve all heard this story pretty often across media outlets.

So, breaking it down, the millennial generation is primed for first-time homebuying and keeping the demand high as the median age continues to climb and more “millennials the younger” move out of mom and dad’s house.

As Goldman Sachs notes, “The Millennial generation is the largest in US history and as they reach their prime working and spending years, their impact on the economy is going to be huge”.

But, there are risks to watch out for:

1. Inventory

It’s also no surprise to hear that housing inventory is lacking across the country. With a major lack of home-building activity, it’s created a demand frenzy and prices to increase.

Many home builders were burned in the last recession having created inventory and left hung out to dry when the buying stopped. So naturally there are some reluctant home builders to build too much, too fast.

Potential home sellers are also nervous to sell because they don’t have any place to go. They, too, are also competing with the limited inventory and high demand to find a replacement property.

The short of it is that we need to see an increase in home building going forward in the future.

2. Inflation

We have seen a significant increase in inflation in recent months, as evidenced by certain factors in the CPI. Artificially stimulated by monetary policy; gas, lumber, car prices, food costs, and other staples have soared.

If inflation doesn’t get back under control, it could mean that non-discretionary payments, like a mortgage, could become difficult for individuals to meet.

Lifepoint Financial Design is keeping a eye on inflation numbers, but does expect to see inflation get back to more normalized numbers.

3. Mortgage Rates

Mortgage rates have been extremely volatile in recent months and deviating from their counterpart in the 10 year treasury note. However, general consensus is that mortgage rates will be increasing over the coming months and years.

An increase in mortgage rates could reach an inflection point where buyers aren’t as enticed to buy up inventory. If this is the case, we could see demand decrease along with home values, leading to an over-abundance of supply.


Content in this material is for general information only and not intended to provide specific advice or recommendations for any individual.

The economic forecasts set forth in this material may not develop as predicted and there can be no guarantee that strategies promoted will be successful.

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