Are Millennials Key for the Recovery of the Single-Family Market?

The single-family market is improving, but at a slow pace. Could Millennials aid in the recovery?

It’s been a long slog for new single-family housing market since the bubble burst, and the industries that depend on a healthy housing market, such as construction and many retailers (and to a lesser extent, the distribution facilities that retailers use). The Census Bureau and HUD had a bit of good news on Tuesday: sales of new U.S. single-family houses in December came in at an annualized rate of 481,000 units. That’s 11.6 percent above the November rate; 8.8 percent above the December 2013 rate; and in fact the highest rate since December 2007, when the air was gushing out of the market.

That’s certainly an improvement, but it’s also sobering to realize that the current sales rate is about the same as it was during the 1960s, when the U.S. population had yet to break 200 million (which it did just before 1970; these days, it’s more than 318 million). During the years of 1970s, ’80s, ’90s and even the earlier years of the 2000s, housing sales were never so low, except during periods of recession. So it could be that housing, while back from the Great Recession abyss, has slipped into a walking-dead state. No one wants it to bubble back to the million units sold during the high of the 2000s mania, but a sustained rate of 600,000 or so would be nice.

What’s the holdup to a full recovery, which hasn’t come despite low interest rates? A number of factors have been suggested. The Realtors are fond of citing tight lending standards, though too loose isn’t a good thing either. Another explanation is that Millennials and others aren’t as likely to buy houses as their parents. If true—and they’re young yet—that’s an indirect factor, since relatively young homebuyers buy relatively few new houses, opting for existing properties. But it might slow things down for owners who want to trade up to a new house, if it’s harder to seller one’s house. Also, there’s simply the fact that in a bifurcated economy, the large majority whose incomes are stagnant simply have less wherewithal to devote to what’s arguably a luxury good, a new house.

That isn’t to say that there won’t be further recovery in the rate of new-home sales. Prices, while fairly high, aren’t bubbling again. Millennials are aging, and they are a very large generation, so some of them will be able to afford houses—and they’ll want them. Also, builders are getting wise to the bifurcation of the economy, and have started offering less expensive options. For example, D.R. Horton’s Express brand of houses—which it describes are “lower priced/fewer amenities”—represented 13 percent of the company’s orders in the fourth quarter of 2014, up from 3 percent a year earlier.