Despite a less-than-ideal way to start the new decade, the American housing market is expected to grow over the next couple of years. 2020 was not great for the real estate market or, indeed, for any market. However, 2021 saw a rebound of sorts that signals to experts an upward trend that they expect will last for the next few years or more.
In 2021 alone, housing prices had an upward climb that real estate experts had not seen in over 30 years, with many properties selling at higher-than-listing prices. By mid-2021, the average listing only stayed on the market for as short as 17 days.
However, this could pose a problem in the mid-term, as there are more buyers than sellers at the moment. But what’s driving up the prices and why is the construction industry having a hard time keeping up with demand?
Millennials Have Money Now
Most experts believe price growth to slow down sometime over the next couple of years as the construction industry goes on overdrive to keep up with the demand. However, with most millennials coming of buying power age, some real estate experts and economists also believe that the surge of first-time property buyers is going to be historic, launching the demand back to sky-high levels. Houses for sale in California have seen some of the shortest times that a property was listed in the California housing market, indicating that suburban real estate is getting snatched up before prices break through a certain threshold. Homes on the market get sold at warp speed.
However, this could be good for everyone involved, both buyers and sellers, if the construction industry is able to keep up. With government tax breaks and stimulus checks still rolling out post-pandemic, this remains a distinct possibility.
That being said, should millennials decide to save their money instead (many millennials are, after all, choosing to move back in with their parents), this could be a portent of bad news. From the Great Recession to the Pandemic of 2020, the world has not been kind to the financial outlook of millennials, and although their generation is earning enough money for a down payment on a house, the mortgage might be too high, especially since millennials have the highest rate of student debt across other age demographics.
The cost of a new house can be prohibitive for some millennials, economists believe that the demand for residential housing is going to remain high, especially since suburban living is becoming a more attractive alternative to city-raised millennials. It’s also worth noting that many in the Gen X generation are entering their retirement age, which means they’ll have more money to provide for their millennial children, so the latter can afford down payments.
The Great Recession Still Weighs Heavy on Everyone’s Mind
The construction industry is lagging behind in terms of demand for a simple reason: there is a general fear of investment, thanks to the Great Recession and the late-2000s housing bubble. 2020 and 2021 saw some of the best movement in the housing market in recent years, but a lack of planning in 2019, due largely in part to conservative business growth processes, prevented the industry from constructing an appropriate amount of housing.
Which makes sense: the home construction industry was short 6.8 million units by 2019, thanks to a 20-year-long deficit that was directly caused by the housing bubble burst of the late-2000s.
That bubble burst still weighs heavily on construction firms who saw their books go into the red because of housing projects they were unable to sell. This is a mindset that’s likely to stay fresh in people’s minds for the next few years, especially after the pandemic of 2020, which saw complete lockdowns over entire cities.
There is a big chance that the construction industry will be “underbuilding” over the next couple of years, says some real estate experts. However, some economists remain optimistic. The severity of the late-2000s housing crisis, coupled with the unprecedented population boom in the country over the past decade, has spurred Federal and state policymakers to be more wary about financial inequality and real estate accessibility. This awareness is leading to aiding builders, creating better zoning laws, allowing for apprenticeship programs within the construction industry, and other programs that are designed to boost supply for the housing demand.
All in all, the American housing market has a few hurdles to overcome. But the next few years do look optimistic, with many experts believing that 2021-2023 are the best times to invest in real estate, particularly residential housing.