Car sales are down. Consumer spending overall is down. But there is one bright spot in the economic landscape – home sales are way up. People keep buying homes in record numbers and that’s a good thing for the economy. We are glad to see at least one bright spot in an otherwise wasted landscape.
Forbes reports “Last month, the number of Americans buying new houses spiked to a 14-year high. Home prices are growing at their fastest pace since 1991. And US mortgage lenders just recorded their biggest quarter in two decades. Lenders handed out a staggering $1.1 trillion in home loans in the past three months!”
Those are numbers we haven’t seen since the housing market collapsed in 2008. But this time it’s a different story. Banks aren’t giving out subprime mortgages. They aren’t offering balloon mortgages. They don’t have exotic and risky interest only mortgages. These sales are rock solid and should stand the test of time.
So, what is happening?
Millennials are finally getting into the housing market.
They are late to the game but are finally investing in housing and that is buoying the markets.
Unlike with other generations the Millennials graduated college with huge student loans hanging over their heads. This prevented them from getting into the housing market at the same time previous generations did. Instead of paying a mortgage they were paying back their student debt.
But in the last year or two they have finally begun to pay off that debt and become free from their college loans. This had freed up between $300 and $600 a month in their personal economies. That money used to go to the loan owners, now it is just sitting in their bank account building up each and every month.
Over time that helps them build up the savings they need to make a down payment on a home. And then once they have that it makes more sense to pay a mortgage every month and build up equity in their home than it does to pay landlords and not build up equity in the place they are living in.
This comes at a time when renting and dealing with landlords is deeply unpopular. That’s because landlords have been constantly raising rents and not giving anything back in return. A consistent mortgage payment starts to look very good in those circumstances.
What this all means is that the housing market should continue to boom for the next several years. Each and every year another group of Millennials ends up paying off their student loans. And those people will then start to think about what they are going to do with the money they now have in the bank that they can spend. That will bring out more home shoppers and should boost the industry even more. Real estate is where you are going to want to be in 2021.
We are glad about that because it should push up prices all around. As Forbes reported: “last month, the average property sold in just 21 days, an all-time record. Dan Borowy, a realtor for housing disruptor Redfin, said he’s never seen anything like this. “I’m selling every listing within three days. Buyers are willing to pay $50,000 over listing price.”