An influx of young people entering the housing market next year will lead to a homebuilding boom, analyst says

A wave of younger buyers are about to enter the housing market in a trend that could spark a boom for homebuilders, according to one housing analyst.

Phillip Ng, a senior buildings products analyst at Jefferies, is predicting a strong tailwind to boost the construction and building materials sector. That’s because young Americans are itching to buy a home, and they’ll likely enter the housing market in droves once mortgage rates come down, he told CNBC in a recent interview.

“When we kind of look out into 2025, we feel great, because, one, the housing market’s been massively underbuilt. We’ve got a wave of young people that are going to be buying homes,” Ng said. “Not surprisingly, when you see rates come down, that’s going to be a massive driver to improve affordability, so that could drum up construction activity.”

Buyers have held back from the housing market over the past few years, largely due high prices as a result of the “lock-in” effect from high mortgage rates, with prospective sellers opting not to list as they cling to lower rates they locked in previously.

The 30-year fixed mortgage rate hovered around 6.35% the last week, Freddie Mac data shows, close to their lowest level since early 2023.

Yet, 89% of existing homeowners have a mortgage rate below 6%, Redfin found in a survey at the start of the year.

Forecasters are expecting housing activity to pick up once rates ease further. New home sales, in particular, are expected to rise 14% in 2024, per a projection from the National Association of Realtors.

That will add to an already-strong few years for construction, with home builders rushing to add fresh inventory amid the shortage in supply on the market. New homes now account for one out every three homes for sale on the market, according to a May report from Redfin, with the market having around 7.5 months worth of new housing supply in July, government data shows.

Builders have also been helped along by rising home prices and stable building materials costs, Ng added, though he noted that monthly housing starts were “choppy” and the price of lumber had plunged in the past year.

“Pricing’s been really really strong,” he added of building materials firms.

Mortgage rates, though, could be slow to come down, housing experts say. The 30-year fixed rate is likely to remain above 6% by the end of the year, Redfin predicted at the start of 2024.