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Both buyers and sellers alike are feeling very good about the housing market this spring, even as home values hit new highs and mortgage rates move up.
A monthly sentiment index from Fannie Mae rose to the highest level since 2011, when the survey began, thanks to a surprising surge from millennials.
"Millennials showed especially strong increases in job confidence and income gains, a necessary precursor for increased housing demand from first-time homebuyers," said Doug Duncan, senior vice president and chief economist at Fannie Mae.
Millennials are moving out of their parents' basements and forming new households at a faster rate, according to Fannie Mae research, but they are still overwhelmingly forced to rent.
"Continued slow supply growth implies continued strong price appreciation and affordability constraints facing millennials and first-time buyers in many markets," Duncan added.
The leading edge of the millennial generation is, however, entering the housing market in larger numbers today, with some venturing out of their desired urban cores to more affordable suburbs. Millennials delayed both marriage and parenthood, but that is now changing.
Nearly half of millennial buyers had at least one child, according to the 2017 Home Buyer and Seller Generational report just released by the National Association of Realtors. That is up from 45 percent last year and 43 percent two years ago. Children are the primary driver of homeownership, which is now sitting near a record low. Just 15 percent of millennial buyers chose an urban area, which is down from 17 percent last year and 21 percent two years ago.
"Millennial buyers, at 85 percent, were the most likely generation to view their home purchase as a good financial investment," said Lawrence Yun, chief economist at the Realtors. "These strong feelings bode well for even greater demand in the future as more millennials settle down and begin raising families."
Those numbers would likely be far stronger if home values were not being forced higher by tight supplies of homes for sale, especially starter homes. Nationally, home values rose 6.9 percent in January year over year, according to CoreLogic. That is far faster than income growth but slightly lower than the annual price appreciation in December — perhaps a sign that the jump in mortgage rates after the presidential election is cutting into prices, even slightly.
"Home prices continue to climb across the nation, and the spring homebuying season is shaping up to be one of the strongest in recent memory," said Frank Martell, CEO of CoreLogic. "A potent mix of progressive economic recovery, demographics, tight housing stocks and continued low mortgage rates are expected to support this robust market outlook for the foreseeable future."
The strongest jump in confidence came from those who say now is a good time to buy a home, but sentiment among sellers also gained, according to Fannie Mae's report.
More Americans are feeling good about employment as well, with fewer expecting to lose their jobs. More are also reporting slightly higher household income, and a growing number expect home values to rise. Those who expect mortgage rates to drop, however, remained unchanged for the third straight month.