Millennials Lack Confidence In the 2023 Housing Market

Millennials are a bit doom-and-gloom these days. At least that’s the conclusion of a recent survey, which found that 75% of them believe home prices could crash at some point in 2023.

For millennials to expect a “crash” within the next 11 months says a lot about how pessimistic the housing market has made them. In context that’s a remarkable number. For starters, home prices don’t tend to crash with the resounding thuds you might expect in the stock market. Real estate prices are slower to move up and down because they are, after all, less volatile properties.

Housing supply: the chief reason behind the pessimism?

There are some valid reasons for millennials to feel a touch gloomy about housing prices. Nasdaq notes that buyers have struggled to find homes available in the last few years. That’s especially true since mid-2020 when available housing inventory became very limited. This has shut out many millennials—many of them still first-time home buyers—from entering the market. In other words, this gives them a reason to root for housing prices to collapse. If it did, then more millennials could get in on it.

But we suspect millennials’ reasons for being so pessimistic about the housing market aren’t all so cut and dry. Let’s look at some other reasons millennials might think 2023 is a year that could see a decline in prices.

Reason #1: Millennials believe inventory is a problem

Housing, like all markets, responds to supply and demand. In the housing market, “supply” also means “inventory,” or the number of units available for purchase. To drive down prices in 2023, a combination of these two factors would have to be true:

• Supply would be high enough that there are more houses than homebuyers know what to do with, requiring price cuts
• Demand would be low enough that, to make sales, current homeowners would have to slash prices

Is this the case as it relates to the current supply? Actually, no. According to Nasdaq, 970,000 housing units were available for sale, adding only about 2.9 months’ worth of available home supply. It would take about four months’ supply to meet the current demand.

In other words, inventory is still low relative to demand, which buoys prices. This creates an obvious elixir for the first part of 2023: don’t expect to see a housing crash unless circumstances drastically change from what we’re seeing.

If anything, this points to millennials being overly pessimistic about the housing market.

Reason #2: Millennials came of age during the housing crisis

If we know that inventory is pointing towards sustained housing prices for the beginning of 2023, what does that say about millennials? They’re a tad on the pessimistic side when it comes to real estate.

There may be a good reason for that. Says Investopedia:

For Millennials—those born between 1981 and 1996—the real estate collapse and subsequent financial crisis and then the COVID-19 pandemic had a lasting impact that still reverberates, and some millennials may jokingly think they have no future.

Those jokes may be of the “truth in jest” variety. But it wasn’t just the housing prices that affected millennial attitudes. At the time of the 2008 housing crisis, many millennials were graduating college, which meant they were loaded with student loan debt (on average, $24,200 in 2010.) Over the years, millennials haven’t been able to put much of a dent in that debt, with even recent numbers suggesting that they remain high. According to Experian, millennial student loan debt even increased on average in 2018.

This put millennials in a unique position in 2008, the last time we saw a housing crisis of immense proportions. Many millennials were graduating from college at a formative age. Some millennials were ready to think about buying homes—only to be interrupted by the housing crisis. With many saddled with high student loan debt, there didn’t seem like an easy way to save the money to buy a home. That may be why those millennials aren’t just pessimistic about housing prices in 2023 but why cynical attitudes about homeownership linger, even though this housing crisis is not like the last one.

Reason #3: Millennials might be rooting for a downturn

Many millennials are still at a point financially where they wouldn’t mind a dip in housing. Millennials were taking advantage of low interest rates, which were present during low inflation. As the Washington Post said last year, the low-interest rate period from 2019 to 2021 saw the biggest increase in millennial homeownership ever.

Now things have changed. Millennials are facing high Consumer Price Index (CPI) reports, like the one in February, which hinted at inflation remaining steadily high in 2023. That means interest rates could continue to be high, which in turn may discourage people from selling. After all, if you secured a mortgage in 2020 at amazing rates, why would you look for a new loan now? People with fixed-rate mortgages are enjoying an excellent hedge against inflation.

For many millennials who want to get in on the housing market, a price downturn would work to their advantage. But that doesn’t mean it’s in the cards. As it currently stands, home prices should continue to see support thanks to the supply and demand curve. As long as demand outweighs supply, even high interest rates aren’t going to send the housing market crashing.