Millennials are finally buying homes and it means 'pent up demand' could last for years (HD)

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Home Depot, America's largest home-improvement store, is counting on millennials to extend the US housing recovery.

The US homeownership rate for people under 35 still trails other age groups for reasons including delayed marriage and record student debt. According to the Census Bureau, 35.3% of people in this age bracket owned homes in the second quarter, up from 34.1% a year ago.  

Home Depot noticed this uptick in the increase of first-time homebuyers that visited its stores for supplies. Carol Tome, Home Depot's chief financial officer, said the company served 424,000 first-time homebuyers in the second quarter, the highest since 2005 and an 11% increase from a year ago. This group made up 38% of all buyers, Tome told analysts during the quarterly earnings call on Tuesday.

She continued: 

"So that is good news. Why? Because first-time homebuyers tend to buy homes that need repair and remodel ... we anticipated this happening with millennials coming into an age where they start to form families, children, or pets or whatever their family unit might look like. They're moving into homes, which bodes very well for us and to your point, it extends the recovery."

Higher home ownership was just one reason why Home Depot reported another strong quarter. Home Depot also benefited from rising home prices caused by a shortage of non-luxury houses relative to the demand.

Tome's comments are "consistent with our view that pent up entry-level demand along with moderately increasing supply should provide for housing expansion over the next several years," said Susan Maklari and Christie Fredericks, analysts at Credit Suisse, in a note Wednesday.

"Low levels of for-sale inventory are creating an environment for accelerated home price appreciation, likely to spur incremental repair and remodel activity going forward," the note added.

Home Depot stands to continue benefitting from rising home prices and greater homeownership. But for more millennials to find houses they can afford, construction needs to pick up. 

"As more and more millennials age into household formation, the pace of housing starts will need to not only meet but exceed the growth in new households so that the housing inventory shortage doesn't increase further," said Mark Fleming, the chief economist at First American, in a note on Wednesday.

Builders have cited land shortages and rising building-material costs as reasons for the supply shortage.

"More home building is needed, otherwise nominal home prices will only go one way up," Fleming said.

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