December 1, 2016 / 2:21 PM / 9 months ago

Data Dive: Will 2017 be the year millennials buy houses?

A single family home is shown under construction by Toll Brothers Inc in Carlsbad, California, U.S. May 23, 2016.Mike Blake

Millennials have been the largest demographic group since 2015, but they have not been pulling their weight in buying homes. And that's put a big crimp on the housing recovery.

Both Zillow.com and Realtor.com, two online real estate powerhouses, are betting that next year those between ages 18 and 36 will start turning that around. 

Realtor.com predicts that home prices will increase 3.9 percent over the next year, with sales of nearly 5.5 million homes. The site expects mortgage rates to reach 4.5 percent (from around 4 percent now).

Economic trends can't undermine the demographics at play next year, though, which is why Smoke thinks the numbers will pan out. For one thing, huge swaths of the baby boom generation will be retiring and potentially looking to downsize. "Baby boomers for the last several years have been under-represented. But the older quarter are more involved now," Smoke said.

Millennials have also been sitting out the housing market, but Realtor.com predicts they will soon make up 33 percent of the market, while boomers only make up 30 percent. And they will be particularly focused on buying in the Midwest.

Among Realtor.com's top 100 regions for buying and selling, retiree and tech towns dominate – eg. Phoenix, Boston and northern California. But a few up-and-comers popped into the top 20, like Detroit and Jackson, Mississippi.

Source: Realtor.com

Source: Realtor.com

Zillow is also rosy on the prospects of millennials buying more houses in 2017. A new report finds that half of all home buyers are under 36, as well as 56 percent of all first-time homebuyers.

While millennials have put off homebuying for a number of reasons – including massive student debt, low wages, high rents and low inventory of affordable homes – Zillow senior economist Skylar Olsen thinks they simply were not ready emotionally. But now the leading edge of the generation is hitting their mid-30s, and may finally be thinking about things like marriage, kids and mortgages.

"Homebuying doesn't really become a dream of yours until you hit those major life events," said Olsen.

Another bit of good news from Zillow's forecast for millennials who are still getting their down payments together: Rental affordability is likely to improve.

The October 2016 Market Report found that rents rose 1.4 percent over the past year, for an average of $1,402. Rents are highest out West, particularly in tech-friendly towns.

The top five markets with the fastest-appreciating rents, according to Zillow:

    Seattle, WA – up 9.1% Portland, OR – up 7.0% Sacramento, CA – up 6.3% San Diego, CA – up 5.0% Los Angeles, CA – up 5.0%

"Incomes will grow faster that rents on average, and that'll be a bit of a breather with many renters," said Olsen.

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