Existing homes going under contract in the U.S. rose strongly in January, a sign of improvement for the housing market heading into the busy spring season.
The number of homes on the market surged for the fifth month in a row, according to a recent inventory report. Until last year, the nation had seen several years of housing shortages.
High home prices, student debt burden, credit card balances and medical debt remain among the biggest factors affecting affordability for younger buyers, but with increasing inventory, a strong labor market and interest rates still near historic lows, economists believe the older members of the Millennial generation will continue to drive a healthier market.
The end of a government shutdown in December and January seemed to open the door for more buyer interest. An index measuring pending home sales—a gauge of purchases before they become final—rose 4.6% to a seasonally adjusted reading of 103.2 in January, according to the National Association of Realtors (NAR).
February existing home sales exploded after the U.S. Federal Reserve announced it does not anticipate raising rates again in 2019.
“A change in Federal Reserve policy and the reopening of the government were very beneficial to the market,” said Lawrence Yun, NAR’s chief economist.
The largest segment of the generation is turning 30 in the next two years, and those who are looking at their second home will find more options in all price tiers, making up as much as 45 percent of mortgages in 2019.
While there is some nervousness among buyers about the potential for interest rates to increase again, some perspective is helpful. For those old enough to remember the housing market of the 1970s and early 1980s, when rates between 17 and 20% were commonplace, the lending climate is still incredibly positive.
Interest rates for home loans fell to the lowest in over a year, setting up the housing market for a strong spring season.
Looking forward, 2020 is expected to be a peak year for Millennial home buying, and this generation will probably dominate the market for the decade to come as its housing needs change.