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First Time buyer Numbers and New Home Demand is Normalizing

By Allison Halliday | July 15, 2014

A recent article in Builder is forecasting that new-home demand is beginning to return to normal patterns seen in the past. After the recent recession many households had doubled up with young adults moving in with their parents.

Now there is an increasing amount of evidence that these young adults are being able to move out into their own homes. A survey carried out last year showed a decline in the number of young adults currently living with parents, the first time these percentages had dropped since 2005 when things originally began to turn bad in the housing market. The percentages involved might seem small, as the numbers of young adults aged 18 to 24 living with their parents fell from 56% to 55% over 12 months. However even a 1% decline equates to 300,000 people who are now currently looking to form their own household.

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The article also thinks these improvements will continue, citing a recent study by the Harvard Joint Center on Housing. It showed that in 2013 there were 2.1 million more people in their 20s who were living with their parents compared to normal rates. As this group gradually begins to leave home there should be an increased demand for housing. The study anticipates that 2.7 million more households, consisting of adults in their 30s, will form over the next 10 years. It's expected that first-time buyers will form a much larger part of the real estate market over the next few years. In a typical market, first-time buyers normally account for 40% of homebuyers, and at this stage in the recovery figures would generally be around 45% or even more. Recently first-time buyers have accounted for 35% to 38% of all homebuyers.

As the market begins to normalize this should help drive new household formations back up to historical averages. Generally there are around 1.4 million new households formed each year, but rates have been less than half at around 500,000 to 700,000. Experts would typically expect to see a rate closer to 1.7 million at this stage. Even though first-time buyers face more difficulties due to student loan debt and mortgage qualification problems, there's still likely to be a significant increase in new households during the next few years.

One issue that does remain is to how many of these new households will be homebuyers. Some will find it difficult to qualify for a mortgage. It's likely many of these new households will move into rental property, but hopefully this will be the first step in buying their own home.

Allison Halliday is a Realty Biz News contributing writer. She handles International Real Estate and is a seasoned blogger.
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