With Millennials Leading the Charge, Demand Continues to Drive the Housing Market Higher

First America Financial Corporation, the Santa Ana, California-based, leading global provider of title insurance, settlement services and risk solutions for real estate transactions, today (1-19-22) released the First American’s proprietary Potential Homes Sales Model (PHSM) report for December 2021.

In a statement prepared to accompany the December PHSM, Mark Fleming, First American’s chief economist said, “Potential home sales measures what the healthy market level of home sales should be based on economic, demographic, and housing market fundamentals. One of the most consistent drivers of housing market potential over the last year has been new household formation. Millennials are the largest generation in U.S. history, and the bulk of them are aging into their prime home-buying years.”

Fleming added, “New household formation, which is the new demand for housing, contributed approximately 165,000 potential home sales compared with one year ago. Even as house-buying power declined by nearly $3,000 on a year-over-year basis due to higher mortgage rates, housing demand persisted because the decision to buy a home is not strictly a financial decision, but also a lifestyle decision. The challenge for new millennial households is the lack of supply, particularly at the starter home price range.”

In a review of 2021, Fleming went onto say, “The final Potential Home Sales Model report of 2021 revealed that market potential ended the year on a strong note. While the winter months are traditionally real estate’s slow season, our measure of the market potential for existing-home sales showed the housing market again broke with traditional seasonal patterns by ending the year strong. In December 2021, housing market potential increased 5.0 percent compared with one year ago but declined modestly on a month-over-month basis to a 6.37 million seasonally adjusted annualized rate (SAAR) of existing-home sales. The strength of the housing market is not surprising given the ongoing wave of millennial demand propelled by historically low rates and greater geographic flexibility due to work-from-home arrangements. Yet, home buyers face a historic and worsening housing supply shortage — you can’t buy what’s not for sale.”