Birth Rate vs. Real Estate

Of all the economic impact related to the Millennial generation’s effect on the world, the latest one could hit you right in the mortgage.

A recent article from Forbes suggested that this generation’s decision to delay having children—thus dropping the birth rate to an all-time low for a second straight year—will affect the Baby Boomers’ ability to sell their larger homes and downsize.  Not only are Jimmy and Suzy not giving you grandchildren, they’re preventing you from clearing all their trophies out of the basement and retiring to that 2BR/2BA ranch home you’ve dreamed of owning. 

Ingram’s recently talked to six working moms in the Kansas City area about how they deal with the stress of a full-time job and being a full-time parent. All but one of them waited until they were at least 30 years old before they had kids. One woman was 36 when she had her first child. When we asked them why, their answers were pretty much the same: They wanted to wait until they were more stable financially.

A 2014 study from the Centers for Disease Control and Prevention confirms that notion as a national trend.  “The average age of women at first birth has risen over the past four decades,” according to the study. The only age range showing an increase in first-time birth rate is women older than 35; between 1990-2012, the rate of first-time births for women age 40-44 doubled. One could draw a logical conclusion that the invention of birth control pills in 1960 and subsequent improvement of birth control probably had a lot to do with the later-in-life first births for women. 

On a related note, the rate of women entering the work force has also risen significantly since the 1960s.  As we wrote in May, “According to the US Department of Labor, in 1960, just 11 percent of moms were the primary or sole earners in a household with a child under 18. In 2017, though, 40 percent of women were the primary or sole earners in households with kids under 18.”

So what about those households?  Why do couples waiting longer to have kids affect your desire to sell your home?

According to the National Association of Realtors’ annual Home Buyer and Seller Generational Trends 2018 Report, Millennials/Gen Y are categorized as being under the age of 36 with a median age of 31. Their data show that of homebuyers age 37 and younger, a whopping 48 percent had no children and just 10 percent had three or more.  Fewer people in the family suggests that those folks want a smaller home, just like the Baby Boomers looking to downsize.  In fact, nearly 50 percent of home buyers under the age of 37 purchased homes that were less than 2,000 square feet.  

What happens nationally doesn’t always directly correlate to what we see in Kansas City; this time, though, it seems to align pretty well. Anyone looking to buy or sell a home right now in Kansas City understands the crunch the housing market is in.  We spoke to Andrea Sheridan, President of the Kansas City Regional Association of Realtors.  She told us that inventory of homes for sale is down significantly.  For Kansas City?  The resale inventory is 1.8 months.  Meaning that if no other homes came on the market today, it would take less than two months to be out of homes to sell.  That’s down sharply from the 5-6 month level that traditionally signals a balanced market favoring neither buyer nor seller.  New construction is much better at 5.1, however, those homes will be well out of the price range for many first-time buyers or people looking to go smaller.

The KCRAR doesn’t track homes in terms of square footage, but by price, and the average sale price for May 2018 for resale homes was $230,682. Realtors, the association says, “have indicated that the starter home/low to mid-price range homes are among the most difficult to find in inventory in this market due to supply/demand challenges.”

The market for new home construction reflects the same trend.  Millennials are buyers, and they’re buying up the homes that you might want.  “In our experience, Millennials are purchasing new construction homes in the “first move-up” price brackets ($275 – $350),” says Summit Homes KC COO Zalman Kohen.  “However, there is a great deal of demand and a noticeable lack of supply in an affordable new homes product ranging in sub-$250k or sub-$275k ($175 – $250/$275) price points.”  It’s not just Millenials or Baby Boomers that are desperate to find affordable housing, either.  Kohen says there’s a strong demand from single-parent and single-women households.  Statistics from the Realtors’ report back that up, showing single women (12%) actually outpace single men (6%) when it comes to buying a home.

Kohen also says that other financial factors are at play, too, with the delay in home purchasing.  “Their financial situations, impacted by the student loan debt, has played a role in the delays.  Moreover, lack of affordable housing options within KC metro area have further contributed to delayed and lower homeownership rates.”

The National Association of Realtors also noted that trend. For that same group of buyers age 37 and under, only 24 percent owned a home previously; 56 percent of them had rented before buying.  As an aside, 10 percent lived with their parents and did not pay rent. 

The reason people are buying homes also plays into the housing crunch.  The top reasons for buying a home, according to the Realtors’ data, were:  desire to own a home of their own (48 percent), want a larger home (12 percent), change in family situation (8 percent) and job-related move (7 percent). 

There are, of course, so many more factors that go into the availability of housing.  For home-building companies, the sheer costs of construction add up to a problem.  “Thus far, YTD, overall number of permits (new home starts) is slightly down for KC metro, as reported by KCHBA, compared to same period last year,” Kohen says.  “There is some softness in sales velocity and absorption throughout KC metro in the upper price points, further supporting the above referenced points of affordability.  Growing labor and material cost increases, skilled labor shortages, and regulatory costs—all impact what it costs to develop land and deliver a new home. Demand and the need is strong for affordable housing options, which we believe is what today’s buyers are looking for.”