- Nearly 25% of millennials surveyed by BofA Research said the pandemic cut their chances of homeownership.
- Millennials led the housing recovery, but the demand exacerbated a housing shortage.
- Record low inventory, coupled with a lumber crisis, has pushed housing prices up and out of reach.
- See more stories on Insider's business page.
Homeownership dreams are fading for some millennials.
Nearly a quarter (24%) of 20- and 30-somethings said the pandemic has decreased the likelihood they'll buy a house, according to Bank of America Research's sixth annual millennial home improvement survey, which polled over 1,000 members of the generation. That's slightly more than those who believed the pandemic increased their chances of homeownership (23%).
Soon after the pandemic arrived, historically low interest rates helped fuel a housing boom. Millennials, who reached the peak age for first-time homeownership, according to CoreLogic, led the housing recovery. After years of struggling to save enough for a down payment, homeownership had finally become attainable for some of the generation.
But the increased demand exacerbated a shrinking housing inventory. There are 40% fewer homes on the market than last year, Black Knight found a month ago. Freddie Mac estimated the US was short 3.8 million homes while a recent bank note from Jefferies put that shortage at 2.5 million homes. The same note also pointed to the underbuilding of homes dating back to the Great Recession.
"We've been underbuilding for years," Gay Cororaton, the director of housing and commercial research for the National Association of Realtors (NAR), previously told Insider. She said the US had been about 6.5 million homes short since 2000 and was facing a two-month supply of homes when it should have had about six months.
There have been 20 times fewer homes built in the past decade than in any decade as far back as the 1960s, Daryl Fairweather, the chief economist at Redfin, also told Insider. She said there aren't enough homes for millennials to buy.
A cutthroat market with short supply
The pandemic itself isn't helping matters. Some owners aren't listing their homes as a safety precaution, Cororaton said. Others are wary of putting them on the market for fear of being unable to find an affordable replacement to buy.
There's also the historic lumber shortage. Lumber factories shut down almost immediately in March 2020 because of safety restrictions. When the housing market opened up, Americans bought more new houses than the lumber industry could keep up with. As demand spiked, lumber prices jumped by almost 200% since April 2020. It led to an average unexpected price increase of more than $35,000 for new homes in the past year, according to the National Association of Home Builders.
That's on top of the already record-high rise in housing prices nationwide. The national median home-sale price hit a new high of $353,000 in March, according to Redfin. "I don't see values going down at any point," Fairweather said.
It's all sparked cutthroat competition as aspiring homebuyers throw down all-cash offers and higher down payments, attempting to snatch up a house before it flies up off the market in less than a month. Homes sold in March had nearly five offers on average, compared with two offers in 2019 and 2020 at the same time.
Seeing some houses with multiple offers, some buyers on tight budgets aren't even bothering to jump into the bidding war. It makes sense, then, if they felt the pandemic pushed homeownership out of reach than those who won a bidding war. This was a more common sentiment among the 20-somethings, per the BofA survey, who likely didn't have as much saved as their 30-something peers.
However, non-homeowners remain optimistic about a post-pandemic housing market. Nearly three-quarters (72%) of respondents in the BofA survey said they're likely to buy within the next two years. It continues an increase in homeownership plans since 2018, when just 53% said they planned to buy within the same time frame.
It's a sign that millennials, the oldest of which are turning 40 this year, are set to drive the housing market for time to come. BofA's research suggests that older millennials are almost three times more likely to live in houses over apartments.
But contractors need to ramp up newbuilds to satisfy this growing demand. Housing starts rose to 1.7 million in March, but pandemic-related challenges like shortages in lumber and shipping, and a lack of skilled labor, are slowing the process down.
As Cororaton put it, homeownership is "going to be more difficult for millennials."