Record Number of Young Adults Living at Home: Active Listings Rising, Price Cuts, and New Inventory Coming Online.

The pandemic while being hard on many industries, created a boost and flood of capital into the real estate market. Housing has been one of the hottest sectors since Covid-19 came on the world stage. Now that we are overheating with inflation, those juicy low mortgage rates are no longer here.

People are now maxed out on easy credit and the bill has come due in the form of inflation – we now need to tame it. The Fed has nearly no choice now but to boost rates as more in the public start realizing the challenge of using funny money to jack up home prices to crowd out young buyers.

In fact, nearly 30 percent of young adults now live at home with their parents. This is a record in our modern era and speaks to the current housing market. Higher rates are cooling the market down at a time when Americans are debt strapped.

New Homes Coming

Homes take time to build. To build many homes takes a lot of labor and capital and the Great Recession put a cold blanket on home building for many years. But now, we have a flood of homes that are hitting the market when consumer confidence is at very low levels:

The last time we built this many homes was right before the Great Recession hit. Is this the time you want a flood of new homes hitting the market? Maybe. In a way, this will certainly help with inflation by driving home prices down. The Fed’s stated policy now is to tame inflation (aka slow price growth). But the question is, can they now stop this runaway train? And of course the Fed can’t openly say they want lower home prices given the optics of that but make no mistake, that is what they are aiming for. Housing is the biggest piece of the CPI pie. The big money has most of their wealth outside of real estate, unlike most Americans. So they are trying to cool real estate and not let the capital markets implode, where most of their money is tied up.

Inventory Rising

Without a doubt, inventory is rising and the housing market has cooled off a bit:

There are two things that will determine the depth of the housing correction. This will depend on the ability of the Fed to tame inflation and the employment market. If we start seeing sizable corrections with employment and we have a long recession, then housing will face a noticeable correction.

Living at Home

For the last few years, every article made it seem that everyone was buying and young professionals were buying up homes in mass. Yet the trend is telling a different story:

In modern history, we have a record number of young adults living at home. That is a challenge for the housing market and keeping the momentum going. Price gains have been largely had by record low interest rates, low inventory, and the stay at home policies. Yet all of those trends have now reversed. So will these young adults go out and buy in mass? Most indications are that they are debt strapped with credit cards, student loans, and auto debt.

All the leading indicators in housing indicate an inevitable correction. The question is, how deep will this go?

Source

Click here for reuse options!
Copyright 2022 Hiram's 1555 Blog