Low supply and high demand is especially challenging for young buyers in these cities.
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A flattening bond yield curve and a very long-in-the-tooth, albeit anemic, broad economic winning streak have gotten housing experts' and analysts' tongues a'wagging,

Right now, by most measures, the U.S. economy only now appears to have regained its memory as to how a recovery can and should behave. The data trends on jobs, wages, corporate profitability, confidence, and an ever more receptive and eased regulatory climate suggest, in aggregate, more momentum to come, not less.

Still, reflexively, involuntarily, and perhaps healthfully, inklings of caution and contingency have begun kicking into play, especially among capital investment strategists. It's they who are on the front lines of facing having to weigh, counter-intuitively, the likelihood that a cyclical downturn will come even though fundamental demand trends and the economic factors that support them have lots of headroom to grow yet.

Will the albatross of an inverted yield curve be wrong this time as an omen?

Will the economic recovery--now--at 11 years running without two consecutive quarters of negative GDP growth--the second longest expansion stretch without a recession in U.S. history decouple from historical cyclical patterns and find room to run beyond the 24- to 36-month horizon of uncertainty that builders, developers, manufacturers, investors, and all of their partners can't help worrying about right now?

It's at this moment housing's business dynamics that the science, art, and alchemy of cycle-timing--a mysterious blend of plain common sense and prudence, skill, canny sixth-sense, and dumb luck--begins to filter and separate some players from others. Inevitably, there'll be those who get to say "I told you so," whether a housing recession occurs in the next two to three years, or not.

How many of those who will make that claim actually know what's going to happen to the housing cycle in the next three to five years is another matter.

One intriguing factor concerns millennials, a term many 50-plus home building, capital lending and investment, and development executives half-hoped would be retired once 30-somethings started showing up in force as home buyers in today's market.

Ironically, it's millennials' latency in housing and homeownership's demand pool that may be the residential real estate and construction economy's best hope of future-proofing itself--to a degree--from a housing recession in the next two to three years.

How's that?

Well, let's take a moment and reflect on the recent past before exploring that thought about what may come next.

It was only three or four years ago that big questions about millennials and housing went like like this.

  • Will millennials ever want to buy homes, or only rent apartments in cool, urban, connected neighborhoods?
  • Will millennials ever be able to buy homes, given their debt from college loans, constraints on their early-career income, and an absurdly tight housing finance credit box?
  • Will millennials ever begin to resemble other coming-of-age young adults in their homeownership patterns and the impact that has, not only on the housing economy but on the economy on a broader scale?

The answers to what had been big mysterious questions among many observers have been answered.

Millennials are behaving--with some social and cultural trends puts and takes--just like almost every generation before them when it comes to wanting in on homeownership and financial work toward achieving that goal, only three-to-six years later than prior generational cohorts.

Now that millennial housing preference and behavior patterns have begun to take clear shape as the leading edge of the cohort crosses the biological clock threshold of age 35, questions seem to be emerging as to how much the second half of the millennial cohort, now in their early-to-mid 20s, will resemble the group that's causing the surge in entry-level, first-time buyer demand we're seeing in today's housing market.

Well, think of it this way.

This younger 20-to-28 year-old segment has just experienced 106 months--an 11-year run--of economic expansion, and has an entirely refreshed and reset reference point for expectations and sentiment.

They're coming into the job and employment pool in a moment where firms of all sizes are clamoring for their services and willing to pay to secure them.

They're working to shed debt and find direction before they strike out on their own, begin to form lasting relationships, marry, and form households, a financially more methodical and logical path than earlier generations.

And, importantly, they've arrived at the homeownership life-stage never having known, nor expected, dirt cheap interest rates of 3% or even below that. So, a higher interest rate, and a higher monthly payment may not be as daunting a prospect for this new crop of adults whose expectations for financial prosperity haven't been clouded or impaired by the scars of the Great Recession.

And they're just getting started on their way. First, they have to move out from mom and dad's place, but then, it's they who may be the time-released wave of demand that could carry housing on its back, even if the broader economy suffers a recessionary stretch over the next few years.