Millennials make housing market rare winner in coronavirus slowdown

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During the last US recession, the housing market was at the epicenter, with values ​​plummeting and foreclosures that turned once prosperous suburbs into ghost towns.

More than a decade later, it became the rare achievement in an even wider recession that crushed industries from restaurants to airlines and pushed unemployment above its financial crisis peak.

The drivers are historically low interest rates anchored by the Federal Reserve’s bond buying program, a flood of government stimulus funds and tight supplies, all of which have combined to drive up house prices. 10.8% over the past year, creating one of the strongest housing markets in the past 20 years.

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“There doesn’t seem to be an end in sight for this one if interest rates stay as low as they are until home prices really start to move,” said Jeffrey Gundlach, CEO and chief investment officer of DoubleLine Capital, based in Los Angeles. in conference call this week. DoubleLine has $ 148 billion in assets under management,

Millennials, the 24- to 39-year-old generation, have recently become a driving force in the housing market after being sidelined by the 2008-2009 financial crisis, which left many people buried in poor homes. student loans and unable to pay a deposit.

The 3% drop in the 30-year fixed mortgage rate caused the average monthly payment to drop 7.36% year-over-year in May to $ 1,007 from $ 1,087 the year before. These payments have fallen a bit further now that the 30-year fixed rate has fallen to 2.9%.

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Since growth must be higher than the interest rate paid on mortgages, these payments will be more affordable as long as wages remain constant.

“If buying a home means you have to take out a mortgage now and in the future, I think you should buy it now,” Gundlach said when asked if it was the right time. to help millennials acquire homes.

Many of the cohort have already been drawn to the lower interest rates. Millennials made up 34% of home purchases in July, according to the National Association of Realtors, and they are expected to buy 15 million homes over the next decade.

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While rates are expected to stay low in the near term, the Federal Reserve will eventually try to raise its benchmark federal funds rate close to zero.

The central bank said in September that it plans to keep interest rates low until 2023, until inflation is consistently high. Consumer prices only rose 1.2% year-over-year in November, well below the Fed’s 2% target.

When inflation returns – and it may be sooner than expected, Goldman Sachs economists forecasting a 5.3% expansion in the coming year – the central bank plans to let it exceed the 2 target. % assumed to represent stable growth. One day. ”

“The rates are extremely low,” Gundlach said. “Now is a good time to buy a house. ”

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