Millennials could squeeze Seattle’s competitive housing market

SEATTLE – Ben and Kellen Goldsmith, both in their late 20s, feel lucky to have bought their first home last month for $620,000 amid one of the tightest Seattle-area housing markets in at least a decade.

The new, three-story town home offered the newlyweds the amenities they wanted, like an open floor plan, sunset views of a nearby lake and proximity to nightlife. The Goldsmiths quit renting and moved into their new home right before Thanksgiving.

Now, “our budget has gotten thinner,” said Ben Goldsmith, a 28-year-old software engineer. “It makes it hard when we want to go and hang out with our friends.”

The trillion-dollar question facing the housing market in 2015 is how many young people in their 20s and early 30s will make that leap to ownership. These so-called millennials haven’t been buying homes at the same rate as previous cohorts of young people.

If a sizable share of them do jump into the market, as some expect, it will put further pressure on the inventory of for-sale homes, which is already at 10-year lows in the Seattle area.

Members of this generation, which came of age as the housing bubble burst and the nation tumbled into the Great Recession, tend to have lower incomes and lower credit scores than the Generation X who came before them.

They’ve flocked to cities like Seattle, only to face skyrocketing rents that make it more difficult to save for a down payment.

As first-time buyers, they’ve had to compete with cash buyers from Wall Street for the least-expensive entry-level homes. Obtaining a mortgage was much more difficult, even with a work history.

But 2015 is shaping up to be a turning point for the housing market and for millennials who want to participate in it, economists and real-estate agents say.

Nationwide, mortgage-financing giant Freddie Mac expects sales of new and existing homes in 2015 to grow 4 percent over the year, reaching their highest level since 2007.

Stan Humphries, chief economist at Seattle-based real-estate website Zillow, predicts millennials in 2015 will overtake Generation X as the largest group of homebuyers. He says if marriage or having kids doesn’t push them into homeownership, soaring rents will.

Real-estate agents are gearing up for it.

“This is going to be the year they start buying homes,” said OB Jacobi, president of Windermere Real Estate, the region’s largest residential real-estate brokerage.

Millennials – the cohort born after 1980, and so named because they are the first generation to come of age in the new millennium – are the country’s largest generation, representing about one-third of the population.

They are less likely to be homeowners than young adults in previous generations, according to a recent report from the president’s Council of Economic Advisers.

The reasons for the decline are varied: The Great Recession made it difficult, if not impossible, for fresh college graduates to find jobs. Many of the new jobs are in expensive cities, particularly on both coasts. Borrowers with less than stellar credit - the vast majority of those under age 30 - couldn’t get mortgages after the 2008 financial crash.

Young people coming out of college are also carrying more student-loan debt than previous generations.

Uncertain job prospects, combined with higher levels of education and changing cultural norms, also meant that many younger people have delayed marriage.

In pricey markets like Seattle, young renters aren’t very confident that they’ll eventually be able to own a home, according to a Zillow study released in September.

Just 11 percent of owner-occupied homes in the Seattle region’s major cities are headed by someone between ages 25 and 34.

Still, census data suggest more people in this age group can afford to own a home: Thirty-five percent of them made more than five times the poverty level in 2013, or more than $60,000 annually.

In November, 76.8 percent of people aged 25 to 34 nationwide were employed, the highest level in six years.

Still, plenty of young and first-time buyers have had their dreams crushed by cash buyers, including foreign investors.

“Seattle is becoming more San Francisco-like and is more recession-proof real estate than we’ve ever seen before,” said Tyler McKenzie, president of the Seattle-King County Association of Realtors.

“When we have buyers from around the world who have the liquidity to plunk down several hundred thousand dollars, that will constrain inventory for first-time buyers and drive up prices.”

Almost 40 percent of homes sold in the Seattle region from April to June went for more than list price, thanks in large part to bidding wars.