. A study by the National Association of Homebuilders found that while the number of prospective Gen Z buyers fell from 20% in Q1 2019 to 13% in Q1 2020, the millennial share grew to 16% from 15%. Additionally, 61% of buyers in Q1 2020 were first-time buyers, which is a minimal increase from Q1 2019’s 60%.
Kaminski said a good portion of millennials entering the housing market went through the Great Recession more than a decade ago, and therefore may approach homeownership more cautiously during times of economic uncertainty. The demographic Kaminski is most concerned with is Gen Z, as many are just starting their professional careers, with them having jobs in the industries hardest hit—retail, hospitality, leisure, travel, and entertainment. “I think some of these younger generation workers are certainly feeling the impact like everybody else who works in those industries—in some cases, the strain is much more significant because they don’t have savings to fall back on. This could certainly play a role in delaying homeownership,” Kaminski said.
Buege, however, noted the effects of COVID-19 have made homeownership more achievable for the “majority looking to own a home.” He added while the economic shutdown has impacted many people, these individuals represent 15-20% of those negatively impacted. “While they have been tem - porarily sidelined, they should remain optimistic, because current setbacks may reverse themselves quickly,” Buege said. Ferguson said the pandemic has made homebuying more difficult, especially for younger buyers, who have been working to improve their financial situation by reducing debts, paying off student loans, or improving their employment position.
“Now they’re having to spend their savings or go back into debt while their income has either decreased or been lost entirely. While the government has passed certain stimulus bills with the aim of putting money into consumers’ pockets, it is doubtful that they will be enough to offset the larger impacts from loss of income,” he said. Khater said the pandemic has “clearly made it harder” for millennials, as they graduated in the worst recession since the Great Depression, making it more difficult to become homeowners. “Now, Generation Z is going through an even worse recession than millennials, and the impact of graduating during a recession means their earnings will be lower and for an extended number of years, similar to millennials,” Khater said.
Analysis by Zillow found the majority of workers have had no issue ditching the office cubicle for the home office. A Harris Poll conducted in May found 75% of those forced to work from home due to COVID-19 said they would prefer to continue at least half of the time, if given the option, once the pandemic passes. Also, 66% of those surveyed said they would be open to moving if they had the flexibility to work from home as often as they wanted.
Where would they move? According to Zillow, these consumers would be drawn to larger homes in the suburbs with larger rooms and offices, as workers would no longer be concerned about their commute. Kushi said this was a trend that First American was following, even prior to the COVID-19 pandemic, as there was a movement from larger metros to smaller metros and a migration to the suburbs and exurbs from the metro centers.
Also, she said there is data by the U.S. Census Bureau that shows Americans are moving from Rust Belt and Northeastern cities to markets across the Sun Belt. Data from the Census found that Texas continues to grow at a rapid pace, with four of the 10 fastest-growing counties since 2010 located within the Lone Star State.
Also, three of those counties sit between San Antonio and Austin, and the fourth, Fort Bend, located in southwest Houston suburbs. Those four counties have added more than 320,000 residents—a 36% increase over their 2010 population. Kushi said while markets such as San Francisco, Los Angeles, and Boston are attractive destinations, especially for younger buyers, smaller cities such as Oklahoma City; Louisville, Kentucky; and Memphis, Tennessee, are more affordable.
“It is likely that the trend of migrating to smaller metros and suburbs will continue because of millennials’ lifestyle choices as they begin to age into homeownership, but it is too soon to tell if the pandemic will accelerate this trend,” Kushi said.
Living within high-density populations, Ferguson said, has lost its appeal.
Kaminski said this is a trend that TD Bank is beginning to follow, as they are trying to collect information about the movement, or potential movement, from urban living to the suburbs. However, he noted it may be “a little too soon to tell” and said that more information is needed before decisions are made. “If you do see that movement—looking for more affordable living with more space out in the suburbs—you’re going to see some impact to inventory or demand, and then ultimately maybe some shifts as it relates to pricing, but I think it’s too early to tell,” he said.
Buege, though, offered a different point of view, saying a move away from the cities is not likely to happen. He said people are learning how to be safe together and are becoming more optimistic about their future. “Lower mortgage rates have reduced the cost of homeownership, so if you’re thinking about it, now is the time to act,” he said. “Inventory will likely remain tight, but not because people are afraid of moving or unwilling to put their home on the market, but due to ongoing demand by those seeking homeownership.
Hale said in the cities of Washington, D.C., and New York City, the suburban view share has not only recovered but is higher than in 2019. Khater said the lack of inventory and low affordability have caused homeowners to look away from the city center, or potentially to other cities. “While homes are more affordable further from city centers, the lack of inventory is still an issue even in the suburbs and marginal demand that flows from the city to the suburbs simply means more competition for a limited set of homes for sale which, longer term as the economy recovers, puts more upward pressure on suburban home prices,” Khater said. Pinto added that the narrative for the years’ prior was that everyone was moving to the urban centers, which he said was “somewhat exaggerated.” In fact, there has been a move away from large metros for a number of years, noting New York City and Chicago have reported falling populations for several years.
Another point of concern for Pinto is the aging baby boomer generation. He said a large number of homeowners in this generation are “going to try to figure out a way not to go into a nursing home or an assisted living facility,” with some questioning if they should remain in their house in the suburbs, rather than move to denser living within the city. Also, Pinto said more children are staying at home longer, whether they are in college or grown children.
Black Knight reported that more than 4.7 million homeowners have entered into mortgage forbearance programs since the pandemic’s outbreak. However, this growing population of homeowners electing to forgo and make reduced payments is causing banks to grow wary. Information by the Mortgage Bankers Association revealed mortgage credit availability has fallen by more than 35% since the virus spread. In March, riskier borrowers “could get a mortgage but just pay a higher price than other people,” wrote Michael Neal, a Senior Research Associate at the Urban Institute Housing Finance Policy Center.
“Now, some people are just not going to get mortgages.” JPMorgan Chase & Co. tightened its standards in May, requiring borrowers to have minimum credit scores of 700 and to make down payments of 20% of the home price on most mortgages, including refinances if the bank didn’t already manage the loan. Wells Fargo & Co. increased its minimum credit score to 680 for government loans that it buys from smaller lenders before aggregating them into mortgage bonds.
“Tighter lending standards will likely make it harder for younger buyers to afford a home, especially if they have student loans to pay off or if they do not have sufficient savings for a down payment,” Koss said. Buege added that the industry doesn’t know how many of the borrowers seeking forbearance actually needed the relief, as opposed to simply applying as a “backup measure” in case they lose employment. “The mortgage credit markets are rightfully concerned—spooked if you will—about what is mostly still unknown. How long will the economic shutdown last, and how many will suffer financially?” Buege said.
Kushi said rising jobless claims—with more than 36 million Americans filing for unemployment since the middle of March— indicates a higher risk of mortgage delinquencies. Lenders, in reaction to this, are tightening credit criteria to account for a higher likelihood of forbearance and delinquency.
“First-time home buyers tend to have lower credit scores and down payments than repeat-buyers, indicating that this will be a significant credit hurdle for first-time home buyers,” Kushi said. “Despite the uncertainty and stricter credit standards, mortgage rates hit a historically low point of 3.2%, and homebuyers responded, with pur chase applications increasing on a week-over-week basis for the fourth straight week. It seems some buyers are not deterred, just delayed in this year’s spring homebuying season.” Kaminski said it is the hope that consumers can safely get back to work sooner rather than later, especially within the industries that were hit the hardest.
“As states and counties move to re-open, we will be watching the impacts closely. But I think we now have a better gauge of the duration to expect and what some of the potential ripple effects to the economy really are,” he said. Kushi