How will the aging of millennials affect the homeownership rate and the size of the first-time homebuyer market over the next five years? One key fact in this puzzle is that between the ages of late-20s to early-40s, the homeownership rate increases from 40 out of 100 to 60 out of 100. The aging of the Millennial population implies that the increase in first-time homebuyers over the age of 30 will likely lead to an overall increase in the number of first-time homebuyers in the 25-44 age group on the order of 580,000 first-time homebuyers over five years. The biggest increase in the number of first-time homebuyers will likely come in the 40-44 age group, with an increase of 450,000 first-time homebuyers over five years, followed by the 35-39 age group, with an increase of 260,000. At the same time, we will likely see fewer first-time homebuyers in their late-20s.
In addition to contributing to the first-time homebuyer market, many Millennials will likely be moving and buying a home for the second time. One measure of the potential number of second-time homebuyers is the cumulative number of first-time homebuyers from the previous 5-10 years. Many studies have indicated that the average homeowner will stay in the same home for 5-10 years. As they find new jobs, have children, accumulate home equity, and earn higher income, these homeowners will likely choose to move to a home that is more suited to their housing needs. This measure suggests that the rapid increase in the first-time homebuyer market will eventually lead to a bigger base of potential second-time homebuyers.
What is interesting from this approach is that it shows that the sharp drop in the number of first-time homebuyers between 2007 and 2011 has a very long-lasting effect on the entire housing market. The pool of potential second-time homebuyers has been shrinking without interruption in the past 10 years and may be a significant new explanation for the flat repeat-buyer market in the current housing cycle. At the trough of the housing cycle in 2011, the number of potential second-time homebuyers was 12 million (Figure 4). Seven years later, that pool has shrunk to 8 million. Therefore, the number of second-time homebuyers would have faced a very strong downward pressure even without a lower propensity for people to move. In fact, a flat repeat buyer market in a shrinking pool of second-time homebuyers suggests that the propensity of homeowners to move has increased, which is a more reasonable argument. According to this analysis, 2018 may be the trough in the potential second-time homebuyer market. The second-time homebuyer market will likely enjoy a strong tailwind thanks to the strong recovery in the first-time homebuyer market since 2014. Between 2018 and 2024, this analysis suggests an increase of three million in the number of potential second-time homebuyers. If this analysis is correct, the housing market will likely experience an expansion in the number of second-time homebuyers and as a result, the housing cycle will have a strong second act and the cycle will be very durable. The maturing of the first-time homebuyer demographics will likely have other implications for the housing market. For example, second-time homebuyers will likely be interested in homes at a higher price point, which could mean that the hottest homes on the market will shift upmarket.