It was only a few short years ago that the conventional wisdom was that millennials were shaping up to be slower entering the homebuying market than their Gen X siblings and baby boomer parents. The theory most famously put forth by the Washington Post’s Catherine Rampell is that millennials were scared by the mortgage market meltdown that triggered the Great Recession in 2008, preferred to live in cities and were unwilling to tie themselves to a single location the way previous generations had. Burdened by student loan debt, and with earnings lowered by the Great Recession, millennials were simply unable to afford homeownership at the same age point as previous generations.
Time, however, has a way of changing landscapes, particularly when a global pandemic sneaks in to influence how people feel about and place value on a lot of things. Things like homeownership.
Because while four or five years ago millennials looked like a generation holding back from homeownership, either due to preference or financial constraint, as 2020 comes to a close the situation has changed markedly. And in shifts, as history demonstrates, a lot of other activity comes pre-built in as the ripple effects of a housing boom among younger consumers tend to travel far.
Today’s Buying Boom
Millennials are no longer holding back when it comes to homeownership. According to the latest edition of the National Association of REALTORS’ Home Buyers and Sellers Generational Trends Report, millennials make up the largest share of the homebuying population at 38 percent, with older millennials (aged 30 to 39) making up 25 percent of that and younger millennials (age 22 to 29 years old) making up 13 percent. These younger consumers are mostly buying first homes (86 percent of younger millennials and 52 percent older ones).
As for the market in 2021, depending on which specific region is looking in, millennial participation is widely forecast to be elevated, but in an environment that has hopefully normalized some after the significant disruption created by the COVID-19 pandemic.
“The 2021 housing market will be much more ‘normal’ than the wild swings we saw in 2020,” Danielle Hale, realtor.com economist noted in a statement on the website’s 2021 Housing Forecast. “Buyers may finally have a better selection of homes to choose from later in the year, but will face a renewed challenge of affordability as prices stay high and mortgage rates rise.”
Millennials are expected to continue to drive the market in 2021, according to the report — with more first-time homebuyers and older millennials making “trade-up” buys. The forecast also predicts that the oldest members of Gen Z (turning 24 this year) may start to make an appearance on the homebuying stage next year. But, the report noted, the two younger generations, lacking home equity to draw on or large cash reserves in most cases, will be hit hardest by home prices and interest rates set to rise next year.
The Mid-Century Housing Boom
These kinds of generational housing booms can have big effects that echo far beyond the housing market itself directly, and into the rest of the economy as a whole. When World War II ended, the U.S. faced an unprecedented challenge of what to do with millions of soldiers returning from war to an economy that had been nearly entirely converted to military production now that the war was over. The more pessimistic commentators of the time predicted that a fast return of those soldiers would create a glut of unemployment that would reignite the Great Depression.
That never happened, and one reason was an often-underrated federal program, the Veterans’ Emergency Housing Program. The program, which as its name implies was designed to make it easier for veterans to purchase homes when they returned from war, acted as an impetus that allowed 2.5 million new homes to be built across the U.S. — but largely concentrated in the newly created car-centric suburbs of the post-war era — over the course of three years between 1945 and 1948.
And that housing boom created by the program wasn’t just an attempt to put veterans into suburban homes; it was part of a larger economic policy designed to inject stability into the economy and avoid the kind of boom-and-bust cycle that had created the Roaring 20’s and the Great Depression. The secret to that stability: consistent, reliable consumer consumption.
Which, as it turns out, is what they got. Consumers living in suburbs needed cars, and their new houses needed stuff Lots of it, which they dutifully bought.
Because consumers who had spent the last several years living with rations were ready to spend their money — on everything from big-ticket items like homes, cars and furniture to appliances, clothing, shoes and everything in between. New car sales quadrupled between 1945 and 1955, by the end of the 1950s 75 percent of American households owned at least one car. Assembly lines like Frigidaire’s — which had been manufacturing weapons — switched to things like refrigerators and washer-dryer sets, which American consumers snapped up in droves.
And all that spending by consumers bought more than home goods — it bought power for the U.S. as well. Gross national product skyrocketed to $300 billion by 1950, compared to just $200 billion in 1940. By 1960 it had grown to $500 billion, making the United States the world’s largest economy by far.
Will the post-pandemic millennials buying boom be the kind of world moving event the Greatest Generation buying boom was in the post-World War II world? It’s hard to guess, but most likely no. The Greatest Generation was a larger generation than the millennial generation and a lot of historical factors combined in that instance (the Cold War being a big one) to create a world-moving event.
Still the situation is not without similarities — a global catastrophe, built-up demand and a generation set to unleash a lot of spending as they take the keys to their first owned residence. It may not change the economic ordering of the world this time around — but it might just shift the road to recovery significantly.
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