MReport January 2020

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M R EP O RT | 53 O R I G I NAT I O N S E R V I C I N G DATA G O V E R N M E N T S E C O N DA R Y M A R K E T THE LATEST DATA Millennials Willing to Wait (and Drive) for a Home More than 90% of millennial prefer a single-family home, even if it meant a longer commute. R edfin reports that 93% of millennial homebuyers would prefer a single- family home over a multifamily unit, even if it involved a longer commute to work. Overall, one in every 10 prospective homebuyers would also prefer a single-family home over a unit in a multifamily development. "I have one millennial couple with a six-month-old baby looking to buy a condo in downtown Minneapolis, but more often homebuyers with young kids are searching for single-family homes in the suburbs with highly rated schools," said James Garry, a Redfin agent in Minneapolis, Minnesota. "Commute time is less of a concern than it used to be because a lot of people are able to work from home and are no longer subject to the Monday through Friday, nine-to-five grind. But even if one person in the family has a long commute, they're usually willing to sacrifice living close to work for proximity to their desired school and wide- open spaces where their kids can play." Of the respondents, prospective buyers from Gen Z (those born after 1995) were more likely to have a unit in a triplex than single-family homes. The report said that 58% of Gen Z prospective buyers would want a single-family home compared to 42% that would prefer a multifamily unit. Regionally, the overwhelming majority would prefer a single- family home than a shorter commute in multifamily development. In cities with a population of more than 1 million people, 86% of those surveyed said they'd prefer a longer commute to own a single-family home. That number increases to 94% for areas with a population between 500,000 and 1 million people. In cities with less than 500,000, 91% would prefer owning a single-family home. "The old saying, 'There are three important things in real estate: Location, location and location' may no longer be as true as it once was," said Connie Durnal, a Redfin agent in Dallas. "A lot of homebuyers are now placing a high value on overall lifestyle, and they're willing to live further away from work, even if it means a longer commute if being home feels like being on vacation. Many of the buyers I work with are looking for a community where it doesn't feel too crowded; they want to feel like they have privacy from neighbors, but they also want neighborhood amenities such as jogging trails and exercise facilities. Those types of lifestyle amenities are becoming more important than proximity to things like restaurants and shops." The report states that retirement hubs like Florida and Arizona are expected to feel the most significant impact. "If demand erodes because fewer people choose to retire there in the coming years, those areas might end up with excess housing," the report states. The Census Bureau reported earlier this month that single- family housing starts rose 2% in October to 936,000, and housing completions were 10.3% higher from September's 1.13 million. "Construction activity reflected elevated home builder sentiment, which reached a 20-month high in October,"'s Senior Economist, George Ratiu said. First American Financial Corporation Chief Economist, Mark Fleming, noted low mortgage rates, rising household income, and a surge of millennials had boosted the demand for housing. Fleming, though, said inventory would continue to be an issue. "However, we have underbuilt new housing relative to demand for years. Building will have to exceed household formation for a number of years to reduce the housing stock 'debt' we have accumulated," Fleming said. A recent Zillow report also supported claims that changing demands from millennials will impact the housing market, forcing homes to become smaller in 2020. "The sprawling, suburban homes that baby boomers coveted will increasingly become a relic of the past in 2020 and into the next decade as the median square footage of newly built, single- family homes will fall for the fourth time in five years," Zillow said. The average U.S. home has shrunk by more than 80-square- feet since 2015. Millennials will make up the largest group of buyers in 2020 and have "much different tastes" than prior generations. Zillow also said millennials prefer homes in urban areas in close proximity to amenities. The National Association of Home Builders reported in November that new single-family homes sizes were smaller during Q 3 2019. The average footage for new single-family homes fell to 2,464 square feet. Average home sizes have been in decline since 2015 when the average square-footage was above 2,700-square-feet. "Typical new home size falls prior to and during a recession as home buyers tighten budgets, and then sizes rise as high-end homebuyers, who face fewer credit constraints, return to the housing market in relatively greater proportions," the report states. Other projections by Zillow also include that the U.S. will not enter a recession in 2020, noting the economy has "remained resilient" when faced with trade volatility and the possibility of a stock market retreat. "Consumer spending has picked back up—reflecting healthy consumer confidence—job creation is on a steady path and annual wage growth has stayed at or above 3% since October 2018. Economic and home value growth should continue into 2021, although perhaps at a slower pace than in recent years," Zillow said. Zillow also forecasts for home value growth to grow slower, with values predicted to increase by 2.8% from December 2019 to December 2020. That projection would be down from the 4.7% annual growth in October. "If current trends hold, then slower means healthier and smaller means more affordable. Yes, we expect a slower market than we've become accustomed to the last few years, but don't mistake this for a buyer-friendly environment—consumers will continue to absorb available inventory and the market will remain competitive in much of the country," Zillow Director of Economic Research Skylar Olsen said. "But while the national story is a confident one, housing in some manufacturing-heavy markets may see adversity. The struggle could be even more stark, since similarly affordable housing markets with a more balanced job profile may be 2020's rising stars."

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