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Where will Southern California house 2.76 million millennial homebuyers?

It's equal to 276,000 more locals needing a home yearly vs. an average 42,000 new housing units created annually.

Jonathan Lansner
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If you think it’s already hard to find a bargain in the Southern California home market, imagine adding a youthful flock of 2.76 million potential house hunters to the equation.

Data crunchers at Zillow say another house-hunting imbalance is brewing, this one created by an expanding wave of millennials. This group faces a challenging supply of housing, especially “starter homes” — defined by Zillow as the bottom third of a market, price-wise. These residences are getting more expensive — and there are fewer available to buy.

Millennials are just reaching their prime homebuying age, and eventually living with parents or other roommates just won’t cut it.

In Los Angeles and Orange counties, Zillow found 2.08 million people will hit age 33 — the median age of a first-time homebuyer in the West — in the next 10 years. That’s a flock 12.2% bigger than what occurred in the past 10 years. In Riverside and San Bernardino, there are 680,000 potential house hunters coming, 11.4% more than the previous cycle.

“Their impact on the market hasn’t fully come to bear,” says Skylar Olsen, director of economic research at Zillow.

Let’s put this wave of kids becoming adults into perspective: It’s equal to 276,000 more locals needing a home each year — buying or renting, assuming they’ll leave home. That comes in a four-county region that’s been creating an average 42,000 new housing units annually over the past five years. Even assuming three people per unit, the regional norm, you can see how the local housing shortfall only gets dicier.

Another Zillow study found Southern California atop the rankings of where millennials — defined as folks aged 23 to 37 — were living with mom — with mom alone, or mom and dad — among 50 major U.S. regions.

Riverside and San Bernardino counties topped Zillow’s metro area rankings with 35.4% of millennials living at home in ’17, up from 18% in 2005. Los Angeles and Orange counties ranked third-highest in ’17 with 32% of its millennials with mom. That’s up from 18.6% in 2005. Nationally, more millennials were living with mom in 2017, too: 22% vs. 13% in 2005, Zillow found.

Any house-hunting millennial will find, by Zillow’s math, a local market that’s relatively unkind to first-time buyers.

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The median-priced starter home for L.A.-O.C. runs $451,000 — third priciest of the 38 metros studied. Inland Empire starter homes run $248,500 — No. 12 of the metros studied. The nationwide median, meanwhile, is $130,600.

And prices are rising. This L.A.-O.C. starter-home benchmark is 44% higher than five years ago — or $138,600 more. In the Inland Empire, starter homes jumped 63% or $95,800. SoCal’s not alone with appreciation: The nationwide increase was 57%.

First-time house hunters face a shrinking supply of L.A.-O.C. starter homes, which are off 9.5% in five years. Inland Empire supply fell 10.8%. Those pondering other places to live, please note the nationwide inventory of millennial-friendly residences is down 23.2%.

Not only do these numbers show the pocketbook challenges young people face, but they also suggest recently cooling housing markets have some significant underlying, long-term support — this millennial surge.

“There will be plenty of demand,” Olsen says, “when we really start to see this generation consider buying.”

ICYMI: Southern California ranked as second-worst ‘mega city’ to live in

If the region can’t meet its youthful housing needs, the next generation of workers is at risk. Moving is an alternative.

The only good news for the region in the report: This youthful housing shortfall is becoming a real estate headache in many parts of the nation, too.