Over half of young adults plan to use their pandemic savings on buying a home, which could worsen the housing crisis

house
Millennials and Gen Z are planning to use their pandemic savings on buying a house.

America may be running out of houses, but young adults are continuing to set their sights on homeownership.

More than half of them (59%) said they plan to use their pandemic savings on a down payment for a home, according to a recent Zillow survey that polled over 1,200 millennials and Gen Zers. It was the most common answer beyond using their savings for everyday living expenses.

“Even in an unprecedented global pandemic, homeownership still appears to be a priority and aspiration among the sometimes called ‘rent forever generation,'” the report reads.

The survey found that 83% of young adults reported saving money in at least one category during the pandemic. This cohort found themselves on the upside of the millennial wealth gap that the pandemic exacerbated.

Lower-income millennials who were already contending with an affordability crisis had little to fall back on as they experienced job loss and pay cuts. But a higher-earning group with stable income was able to save and invest money they would have otherwise spent in non-pandemic times.

Two financial advisers told Insider last June their high-net-worth millennial clients were tucking away excess cash, as much as $3,000 a month in some cases, which normally would’ve been spent on brunches or plane tickets.

Read more: Millennials are getting screwed again by their 2nd housing crisis in 12 years

The extra cushion helped them drive the 2020 housing boom – more millennials became homeowners than any other generation that year. Millennials are turning ages 25 to 40 in 2020, meaning many of them are entering prime homebuying years.

Interest rates hit a historical low in 2020, making it easier for those with enough money saved for a down payment to buy a home. But the combination with the year when many were working from home soon led to a cutthroat housing market, marked by a historic housing shortage and lumber scarcity which both propelled housing costs to several record highs. That has resulted in bidding wars nearly everywhere nationwide, with competing bidders throwing down all-cash bids and higher and higher down payments.

Many millennials able to snag a house did so by paying above market price, while others saw homeownership pushed further out of reach as housing prices skyrocketed and morphed into an inventory crisis.

As Insider’s Ben Winck reported, the lumber shortage has largely made it too expensive to for builders to construct more homes. Housing starts fell nearly 10% through April after surging the month prior, signaling supply won’t bounce back all that soon. Lumber has come down somewhat since from its super-expensive level, though.

Considering that millennials have just reached peaked homebuying age, and some Gen Zers are already househunting, young adults will be driving the housing market for years to come. This survey suggests that wealthier members of both generations will put their pandemic savings toward down payments, so the unequal housing boom may not abate any time soon.

Whether they will be able to find an available house is another question.

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Expensive lumber costs have added $36,000 to the average price of a new home, report finds

construction workers building home
Construction workers build a new Centex home on Tuesday, June 23, 2020, in Houston.

  • Expensive lumber has added to the costs of new houses in a year when all house prices have skyrocketed.
  • NAHB found that soaring lumber costs have added $35,872 to the average price of a new home.
  • Experts are concerned that high home prices will hinder homebuying for many – especially millennials.
  • See more stories on Insider’s business page.

Just a few months ago, in February, the National Association of Home Builders (NAHB) released shocking data about how the historic appreciation in lumber prices was crimping the housing market. A newbuild was $24,000 more expensive, on average.

Three months later, that number now stands at $35,872.

The housing market took off last summer, as the pandemic enabled many to work from home indefinitely, and with mortgage rates so low, many people rushed to buy new homes. But the pandemic shut down lumber production, and it hasn’t kept pace with building since.

“This unprecedented price surge is hurting American home buyers and home builders and impeding housing and economic growth,” NAHB Chairman Chuck Fowke said in a statement. “These lumber price hikes are clearly unsustainable. Policymakers need to examine the lumber supply chain, identify the causes for high prices and supply constraints and seek immediate remedies that will increase production.”

A report from the NAHB in February said the lumber supply chain impact came as factories shut down almost immediately last March for safety reasons, and then as demand spiked, supply couldn’t keep up. Lumber prices have jumped by 340% compared to last year.

Insider reported on March 26 that because lumber prices are so high, home builders have been building fewer homes and intentionally raising prices to keep up with the high demand for houses amidst the low supply of lumber.

In addition, a report from Redfin – a real estate brokerage- found that the average home sale price hit an all-time record in March, increasing 16% year-over-year t0 $331, 590, and with about one in three homes being sold for more than the asking price in February, experts like Redfin Chief Economist Daryl Fairweather are concerned.

“When the pandemic is over, purchasing a home is going to cost much more than ever before, putting homeownership much further out of reach for many Americans,” Fairweather said in a statement. “That means a future in which most Americans will not have the opportunity to build wealth through home equity, which will worsen inequality in our society.”

Insider’s Hillary Hoffower reported on April 30 that the pandemic and the lumber shortage are combining to put homeownership out of reach for many, but especially the millennials entering their prime homebuying years. Fairweather told said the housing shortage is leaving millennials “boxed out of the housing market.”

On March 12, the NAHB, along with more than 35 other housing organizations, wrote a letter to Commerce Secretary Gina Raimondo asking her to examine the lumber supply chain and look into solutions for the high costs.

They said: “Housing and construction can do their parts to create jobs, boost the economy to its pre-pandemic strength, and provide safe and affordable housing for all Americans, but in order to do so the federal government needs to address skyrocketing lumber prices and chronic shortages.”

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The Fed is watching housing ‘carefully’ and hopes builders catch up to the red-hot market, Chair Powell says

Jerome Powell waits to testify before the Senate Banking, Housing and Urban Affairs Committee on his nomination to become chairman of the U.S. Federal Reserve in Washington, U.S., November 28, 2017.   REUTERS/Joshua Roberts
Federal Reserve Chair Jerome Powell.

  • The Fed is “carefully” watching the housing market as huge demand sends prices soaring, Chair Jerome Powell said.
  • The central bank doesn’t see “the kind of financial stability concerns” that fueled the 2008 crash, he added.
  • Powell said he hopes homebuilders react “and come up with more supply,” which would also boost job growth.
  • See more stories on Insider’s business page.

The housing market boom has caught the Federal Reserve’s attention.

By several measures, the US housing market is running at its hottest level since the mid-2000s bubble that nearly crashed the global financial system. Prices have surged at decade-high rates, and homebuying, while slowed from recent highs, remains elevated. What began as a pandemic-era rally has since raised concerns that soaring prices are eroding home affordability just as the US economy rebounds.

The market frenzy is being “carefully” monitored by the Fed, but there’s little reason to fear another nationwide crash, Fed Chair Jerome Powell said in a Wednesday press conference. The subprime lending and speculative purchasing that fueled the 2008 meltdown aren’t nearly as abundant this time around, making for a “very different housing market” than that seen a little over a decade ago, he added.

“I don’t see the kind of financial stability concerns that really do reside around the housing sector,” Powell said. “We don’t see bad loans and unsustainable prices and that kind of thing.”

Much of the boom is driven by demand significantly outstripping supply. Home inventory sits near record lows, and while housing starts recently leaped to the fastest rate since 2006, it will take some time for construction to equate to new supply.

Powell acknowledged the imbalance and highlighted that a bounceback in supply could also serve the labor market’s recovery.

“My hope would be that over time, housing builders can react to this demand and come up with more supply, and workers will come back to work in that industry,” he said.

Some of the current market strains can be tied directly to fallout from the 2008 crisis. The intense homebuying activity seen throughout the 2000s drove a boom in new construction. The rally lasted for years until dubious lending brought the market toppling down. Construction came to an almost-complete stop, and while it trended higher through the 2010s, it failed to retake levels seen during the prior decade’s surge. That building deficit is just now coming back to bite prospective homebuyers.

“We’ve been underbuilding for years,” Gay Cororaton, director of housing and commercial research for the National Association of Realtors (NAR), told Insider’s Hillary Hoffower.

While the Federal Reserve has little direct influence on the housing market, the central bank’s promise to hold interest rates near zero for the foreseeable future places downward pressure on mortgage rates. Lower borrowing costs help lower the barrier to entry for potential buyers, as would the previewed jump in supply.

Signs point to demand holding up even as supply recovers. Nearly 9% of Americans plan to buy a home in the next six months, according to The Conference Board’s latest consumer confidence report. That’s the largest share since 1987.

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