30 is the new... homeowner?

November 26, 2019

30 is the new... homeowner?

The consensus view is that homebuilding in the United States is, like many industries, coming to the end of a cycle, meaning prices are not likely to increase much further from here and may even decrease. We think this negative outlook is overly reliant on extrapolation of data on prices and volume of houses on sale. It is also due to comparisons with a single precedent: the year 2007, when the global financial crisis began.

This analysis ignores a likely avalanche of incremental housing demand driven by first-time millennial household formation in the next two to three years. We believe more sophisticated negative views, which acknowledge but dismiss this potential positive demand shock, are misguided. We think this housing cycle has much further to go.

Demographics, specifically household formation, drives demand for new homes. The more net new households are formed, the more new homes the country needs, regardless of whether the residents rent or buy. Americans are far more likely to head their own household as they age into their 30s, and there are about to be a lot more 30-somethings in America.

On this basis, we think the market still misunderstands where we are in the housing cycle. We believe that the new home construction market will make much higher highs in volume and dollars before a material downturn, and that the market is underestimating the future demand tailwind from younger, first-time home buyers.

Nicholas G. Cohn, Director, Senior Research Analyst, Mellon

*Head a household: The head of a household the person in the house who is responsible for making decisions and earning money.

All investments involve risk, including the possible loss of principal. Certain investments involve greater or unique risks that should be considered along with the objectives, fees, and expenses before investing.

Charts are provided for illustrative purposes and are not indicative of the past or future performance of any BNY Mellon Investment Management product.

Mellon is a global multi-specialist investment manager dedicated to serving our clients with a full spectrum of research-driven solutions. Mellon Investments Corporation (Mellon) is a registered investment adviser and an indirect subsidiary of The Bank of New York Mellon Corporation. 

BNY Mellon Investment Management is one of the world’s leading investment management organizations and one of the top U.S. wealth managers, encompassing BNY Mellon’s affiliated investment management firms, wealth management organization and global distribution companies. BNY Mellon is the corporate brand of The Bank of New York Mellon Corporation and may also be used as a generic term to reference the Corporation as a whole or its various subsidiaries generally.

Views expressed are those of the manager stated and do not reflect views of the other managers or the firm overall. Views are current as of the date of this publication and subject to change. This information contains projections or other forward-looking statements regarding future events, targets or expectations, and is only current as of the date indicated. There is no assurance that such events or expectations will be achieved, and actual results may be significantly different from that shown here. The information is based on current market conditions, which will fluctuate and may be superseded by subsequent market events or for other reasons. Forecasts, estimates and certain information contained herein are based upon proprietary research and should not be considered as investment advice or a recommendation of any particular security, strategy or investment product. Certain information contained herein has been obtained from sources believed to be reliable, but not guaranteed. Please consult a legal, tax or investment advisor in order to determine whether an investment product or service is appropriate for a particular situation. No part of this material may be reproduced in any form, or referred to in any other publication, without express written permission. Mellon and BNY Mellon Securities Corporation are subsidiaries of BNY Mellon.