By now, after years of low inventory and short market times, pretty much everyone realizes that we continue to be in a protracted seller’s market. And the assumption most people seem to have is that it must be the direct inverse for buyers. That would be true if the only criteria were to look at inventory.
There are other factors to consider, though. Interest rates and affordability should be taken into account. And it’s really important to consider that the focusing question that most potential buyers are likely asking themselves is: “Should I buy now, or wait?” (It is not “Should I buy or rent forever?”). Therefore, looking at forecasts and demographic shifts should also be a big part of assigning a Buyers’ Market Meter rating.
With those considerations in mind, I’m calling the current buyer market a solid ‘5’ despite our super-low inventory of homes for sale, and here’s why:
First, the biggest: One of the most compelling things that hardly ANYONE in real estate is talking about – yet – is the impact that all those babies born in the late 1980s and early 1990s in the United States are likely going to have on our markets. Specifically, in the next five years, the largest cohort of adults since the tail end of the Baby Boomers is going to be turning 32, which was the median age of first-time buyers in 2018. In 5 years, they will be 32-36 years old—in their prime home-purchasing years—and having kids. Millennials are currently more than two-times more likely to own a home if they have children. For the past 8 years, builders have been woefully unable to keep up with the growing demand for more homes in the U.S. and there’s not much indication that will improve to the levels that the Millennial surge will demand.
Second, money’s cheap. Interest rates for well-qualified buyers shopping conforming loans have been hovering in the mid- to upper-3%s for many months—very near all-time lows. The Twin Cities housing affordability index checked in at an 11-month high of 151, which means that our area’s median household income is 151% of the amount needed to qualify for a median-priced home. For context, this index dipped into the low-120s as we were nearing our market crash in 2008-2009.
And what of forecasts? Most sources I watch closely are in alignment that interest rates should stay quite low in 2020, and recent employment and income data suggests affordability shouldn’t get dinged too badly as long as prices continue to climb steadily rather than suddenly (we checked in at a 5.7% appreciation in 2019). But bear in mind, with all the Millennials lining up to buy in the next few years, prices could surge in the starter-home segment of the market beyond the recent, more moderate 4%-6% appreciation we’ve been seeing.
How does this all add up? Well, money’s almost cheaper than it’s ever been, the median household has the income to comfortably afford homes at today’s prices, and a glut of competing buyers is gathering at the gates and could be about to bust them open. That actually sounds like a pretty good time to buy. The challenge of course is that inventory is already low—but that is not likely to change, so why wait for it to likely get even lower?
Sources: National Association of Realtors, Minneapolis Area Association of Realtors