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In 2020 the housing market is likely to receive a huge boost from Millennials purchasing their first homes. This real estate boom is likely to be propelled by a decrease in interest rates and the stability of home prices. However, this growth in the number of new homeowners may be thwarted by the lack of starter homes currently available on the market.

Decrease in the Number of Starter Homes

For the most part, the shortage in the number of starter homes has been perpetuated by the presence of a seller’s market. This has led to a decrease in supply and an increase in demand leading to a shortage of houses. This poses a problem for millennials looking to purchase their first homes.

Increased construction costs and rezoning laws are also barriers to the construction of new houses. For those looking to purchase a home in the near future, the cost associated with construction materials and labor can be prohibitive. Add to this the changing desires of buyers and the shortage of starter houses becomes problematic for anyone desiring to purchase real estate.

Investors and market speculators further decrease the availability of reasonably priced homes for first-time buyers. Analysts report that in 2018 20% of all starter homes purchased in the United States were bought by investors. This is a marked increase from just 20 years ago. In addition in more lucrative markets, investors were responsible for the purchase of half of all the affordable housing inventory and 20% of single-family dwellings.

Investors often have a huge advantage over conventional home-buyers because they can and do pay cash for properties. This means that conventional buyers are often outbid. Additionally, the price of starter homes is nearly 40% higher than it was 40 years ago. These increased prices and the prevalence of the student debt crisis will make it extremely difficult for some Millennial’s to purchase a home.

For Millennial’s, the ability to purchase a starter home is more difficult than previous generations. The good news is that potential homebuyers will likely benefit from the balancing out of the market that will likely occur throughout 2020. This generation should not be discouraged but instead, look for creative ways to become homeowners.