2015 began rather sluggishly for residential markets, compared with the burst of activity in the final months of 2014. Closing activity is still far ahead of this time last year, but continues to be hindered by the gradual recovery of the economy. While severe weather nationwide certainly had an impact on first-time buyer activity – an annual pace of just 4.8 million sales – there are other factors, apart from a stormy spring, that could be restricting home sales.
For starters, first-time buyers are not overly excited by their choices. In many cities, inventories are falling, pushing up competition and prices in desirable areas. The supply of homes nationwide fell in January for the second month straight on a year-over-year basis, after having risen for 16 straight months. Levels are now far below what the market needs to motivate buyers and keep prices from rising too quickly.
Not all is grim, however. Demand for new construction is on the rise and the need for labor along with it. Homebuilders in search of skilled labor will find it in abundance as workers leave the slowing oil industry for construction jobs, which are now experiencing wage hikes. As a result, the market may see a 30% increase in new-home sales this year alone.
Second, there could be a change in lifestyle as millennials forgo purchasing a home in favor of renting. Homeownership rates, now at 64%, are at their lowest in the last two decades. This may have more to do with economic realities than lifestyle choices, though. More millennials than ever are living with their parents as they pay off student loans and struggle to find good-paying jobs.
But all this is not without hopeful signs, as well. Jobs and wages are steadily improving and mortgages are slowly becoming easier to acquire. These trends, combined with the prospect of a rise in home construction amid the strengthening economy and low interest rates, offer an optimistic outlook for first-time homebuyers in 2015.