NEW YORK (MainStreet) — Rising rents may be forcing adults 35 and younger to do something they've been stolidly resisting: buy a home. Zillow, the real estate information service, says Millennials will comprise the largest demographic of home buyers by the end of 2015, edging out Gen X (those 35 to 50 year olds).
"Home value appreciation will continue to cool down, from roughly 6% now to around 2.5% by the end of 2015. But rents will see no such slowdown, and will continue to grow around 3.5% annually throughout 2015," said Dr. Stan Humphries, Zillow chief economist, in an analysis. "As renters' costs keep going up, I expect the allure of fixed mortgage payments and a more stable housing market will entice many more otherwise content renters into the housing market."
In the meantime, Humphries says builders will be constructing less expensive homes, in order to meet the demand.
"In recent years, home builders seem to have made a conscious decision to sell fewer, more expensive homes instead of more, cheaper homes," Humphries said. "In 2015, that will change, especially as demand moves toward the lower end of the market as Millennials begin buying en masse. New home sales volume has been stuck around the 450,000 per year mark. In order to break out and get that number above 500,000, builders are going to have to start to build cheaper homes, which will help to narrow the price gap between new and existing homes and contribute to more rapid inventory gains."
Millennials have so far delayed their first home purchase, as well as marriage and starting a family. But Humphries says as the generation grows older, they will be "a home-buying force to be reckoned with."
Zillow has profiled the markets that seem to be most favorable for first-time buyers in the coming year, with strong income growth among 23-34 year olds, a growing number of entry-level homes on the local market and moderating real estate prices. Considering these factors, the top five best markets for new homeowners in 2015 will be Pittsburgh, Hartford, Chicago, Las Vegas and Atlanta.
--Hal M. Bundrick is a Certified Financial Planner and contributor to MainStreet. Follow him on Twitter: @HalMBundrick