The housing market is slowly gaining strength after the ravages of the Great Recession. Home prices are rising across the country, and both home sales and housing starts are up year-over-year. Home-builders are gradually gaining confidence, in part because of anticipated growth in the first-time homebuyer market.
That market has been severely depressed. From 2004 to 2014, the home ownership rate for those under age 35 fell from 43 percent to 36 percent, according to U.S. Census data. And economist Robert Dietz at the National Association of Home Builders said the proportion of single-family homes purchased by young buyers has fallen to 18 percent, from an historical average of approximately 30 percent.
But Dietz points to several recent indicators suggesting that more young people are now entering the market for first homes — or soon will be. He cites an increase in household formation, which has risen in the past three quarters, after falling during and after the recession. (Household formation is the establishment of new households — typically by young people moving out from their parents’ home or a roommate situation, or new families forming though marriage and domestic partnership.) The birth rate has started rising again as well.
Dietz said there is a popular stereotype of the so-called Millennial generation as averse to major financial and life-cycle milestones, like moving out on one’s own, starting a family, and buying a house. But in fact, he said, “consumer preference surveys have traditionally shown at least three-quarters of Millennials are interested in becoming homeowners eventually.”
He cited, among other sources, a recent survey of young people by Fannie Mae.
And the improving economy should finally put some wind at young peoples’ backs now. Jobs are more plentiful and secure now than several years ago, and interest rates remain low.
On the other hand, many young people carry a significant student debt burden, which may make it more difficult for them to take on additional debt and get a mortgage. Credit standards to obtain a mortgage are still very tight. And rents are climbing steeply in many markets, making it harder to save for a down payment.
Plus, in some of the hottest urban real estate markets — such as San Francisco, Denver, Seattle, and New York — first-time buyers face an “affordability crunch,” with rents and purchase prices simultaneously soaring in the most desirable neighborhoods.
An example is Portland, Oregon’s trendy Southeast Division Street, a busy urban strip lined with new apartment buildings, funky clothing stores, and a $4-per-scoop gourmet ice cream parlor where there’s often a line halfway down the block.
Inhabit Realty occupies a concrete-glass-and-steel office at street-level in one of the new mixed-use commercial buildings on the strip. Eric Hagstette is principal broker. “You have a local grocery store, you have shops, restaurants, parks, public transportation all at your fingertips,” said Hagstette.
“And that’s what’s driven our prices so high—because people want this lifestyle.” Hagstette said. “A new condominium home or townhome easily goes for $400/square-foot.” 
That works out to about $500,000 for a 1,500-square-foot 2-bedroom unit in a new building. Prices can be significantly higher for fully-upgraded and -renovated century-old craftsman homes on the neighborhood’s narrow, tree-lined streets.
This is not a real estate market that most young buyers — except perhaps the highest-paid tech and corporate workers — can easily buy into.
Fortunately, said economist Robert Dietz, most don’t want, or need, to. “In medium-sized and smaller metro areas, the traditional single-family home in the suburbs remains popular,” said Dietz.
The reason is partly affordability. The typical American starter home, likely in a suburb or small city, costs just $168,000, according to Fannie Mae.
“There has been an increase in college-educated young adults living in very dense urban neighborhoods — smart young things living in Brooklyn, in downtown San Francisco,” said housing analyst Jed Kolko at U.C. Berkeley’s Terner Center for Housing Innovation. “But it’s not true of that generation overall. Only about one third of 25-to-34-year-olds have a college degree. Today they are actually less likely to be living in urban neighborhoods, as opposed to suburban areas, than that same age group was in 2000.”
Josh Rief, who is 30 years old, recently took the home-buying plunge in the suburbs. He and his wife, Chelsia, purchased a five-bedroom, 2,800-square-foot house in a large housing development in Molalla, Oregon, about 40 miles from downtown Portland. There are farms and timberland all around.
Josh works at a local bank as a treasury analyst. Chelsia is a stay-at-home mom and also publishes a food blog part-time. They have three children, aged 11, 7, and 2. Chelsia said for more than a decade they rented — trying to save, living in cramped spaces.
“We were quickly growing too large for our other home,” she said. “We just felt like we needed to get the kids into a home that they could grow up in with more space, in a neighborhood where there would be kids their age.”
They paid $260,000 and got a mortgage just under 4 percent.
“We were just looking for a good, homey, secure spot,” said Josh. “We’d love to have a quirky little place in Portland with lots of character and history and everything else. But I’m not willing to pay an extra $300,000 for that right now. Right now, I just need space for my kids.”
And he’s found it — in the cookie-cutter suburbs far outside the hip urban hub. It’s likely to be a choice more young people make, as they graduate from their recessionary twenties into financial middle-age.