Are Housing Prices Drying Up Our Savings?

February 14, 2018

The demand for apartments has been robust over the past several years, particularly within the Millennial generation, which has contributed to strong rent growth for the sector. From a demographics perspective, Millennials are delaying life choices such as homeownership and marriage; as a result, homeownership rates are at historical lows. However, there is much more to the story than just demographics driving down homeownership rates. In fact, as illustrated in the table above, the growth in home prices has exceeded its long-term average by 2.9 percentage points. Concurrently, family income growth is down, below its long-term average by 1.9 percentage points, making it increasingly more difficult to own a home in today’s market.

Even more concerning is how much housing costs are contributing to core CPI, illustrated in the graph above. As of October 2017 (the most recent data point available), housing inflation contributes 78% of the total core inflation rate, compared to historically averaging approximately 50%. The combination of increasing home prices coupled with decreasing family income growth is the perfect storm for Millennials looking to purchase a home today. Spending more on housing not only means spending less on other consumer goods and services, but it makes it difficult for the average Millennial — especially those with student debt obligations — to save for the future.

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The opinions expressed herein are those of Marquette Associates, Inc. (“Marquette”), and are subject to change without notice. This material is not financial advice or an offer to purchase or sell any product. Marquette reserves the right to modify its current investment strategies and techniques based on changing market dynamics or client needs.