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Housing

Millennials drive homeownership higher despite rising mortgage rates

The S&P CoreLogic Case-Shiller national home price index rose 5.8% year over year in August, the first time in 12 months when the increase has fallen below 6%. The August reading is also a 20-month low.

Rising mortgage rates? Higher prices?

No problem.

Millennials are shrugging off those growing housing-market obstacles and snapping up homes in greater numbers as they land better jobs and bigger raises. They’re also getting married and starting families after putting off those life-changing events.

The homeownership rate for Americans under 35 jumped to 36.8 percent in the third quarter, highest in five years, the Census Bureau said Tuesday. The share of millennial homeowners was up sharply, from 36.5 percent in the second quarter and 35.6 percent a year earlier. That’s still below the historically normal 40 percent-plus share for Americans that age.

But the young adults, largely first-time homebuyers, drove the national homeownership rate to 64.4 percent – highest since 2014 – from 64.3 percent the prior quarter.

Surprise

The report was somewhat surprising in light of a housing market that has sputtered this year, with home sales falling amid low supplies and rising mortgage rates and prices. Thirty-year fixed mortgage rates averaged 4.86 percent last week, up from 3.94 percent a year ago.

But those hurdles have been offset by an improving labor market. Millennials who struggled to find jobs after the Great Recession of 2007 to 2009 are snagging ones that better match their skills and seeing bigger pay increases, says Ralph McLaughlin, chief economist of Veritas Urbis Economics.

“They had to come up with a down payment, they had to overcome bad credit,” McLaughlin says. “They still want to own homes.”  

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And while national home supplies are still low, they’ve gradually increased to 1.91 million in September from 1.86 million year ago, according to the National Association of Realtors.

Market slowdown helps

Skylar Olsen, director of economic research for real estate site Zillow, says the slowing housing market actually has aided millennials who are facing somewhat less competition as they hunt for their first home.

“They’re going boldly forward to finally win one of those bids,” she says.

Luke Gabig of Pittsburgh thought he and his fiancée, Gabi Garver, had snared their dream house two years ago only to have another buyer wrest it away at the last minute with an all-cash offer. “That was annoying,” the 26-year-old benefits administrator says.

They decided to give up their search and continued to rent. But in August, they attended an open house for a three-bedroom ranch the first day it was put on the market and immediately offered $10,000 above the $150,000 asking price. They got it.

After graduating from college in 2012, Gabig worked restaurant jobs because he couldn’t land a position in his field. He finally did in 2014 and has received healthy raises since then while Garver has gotten a job as a phlebotomist, a medical professional who draws blood, after earning a certification two years ago. The extra money is helping the couple afford their 10 percent down payment and $1,200 monthly mortgage installment.

“We just got lucky,” Gabig says of the purchase.

A mountain of student loan debt prevented Nicholas Dwayne, 33, of Chicago, from buying a home for years. But his wife, Julie, has amassed healthy savings, allowing the couple to buy a two-bedroom $285,000 condo last year, before they got married.

“Rent is throwing money down the drain,” Dwayne says.

The surge in millennial homeownership is a sign the recent housing slowdown is likely temporary, McLaughlin says. “Because that group is so big, it can help support the U.S. housing market indefinitely,” he says.

 

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