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Date: February 20, 2018
Category: Real Estate

Millennials are Growing Up: What’s That Mean for Apartment Real Estate Investing?

When it comes to Millennials and their preferences for housing, the numbers show that they favor renting over homeownership.1 Apartments provide Millennials access to an affordable option that offers flexibility without maintenance responsibilities.

At 75.4 million strong, Millennials are the nation’s largest age demographic.2 Their lifestyle preferences coupled with their sheer size have helped grow today’s prime renter population, which is defined as those age 20 to 34, by 6.7 million over the last 10 years.3

However, Millennials are getting older, and some investors may be wondering if the generation has “peaked” and will soon start turning to homeownership.4 But if you ask Millennials, they might paint a different picture.

Older Millennials may want to own…but can’t

Older Millennials between the ages of 29 to 36 are finally getting married, starting families, and settling into long-term careers. One would imagine a home purchase would be next, and in the past they’d probably be right. But changes in the housing market are making homeownership difficult.

The current supply-demand imbalance for affordable inventory on the market is causing home prices to soar. The available housing inventory has declined for 22 straight months, and is down a staggering 11 percent since 2015.5 Additionally, home prices are rapidly rising. In July 2017, the average median sale price for a home was $259,000, up $30,000 from the previous year.6

On top of diminished inventory and soaring price tags, older Millennials are also feeling the impact of rising interest rates. Interest rates have increased four times since 2015, signaling a strengthening economy, but also rising mortgage rates.7 As a result, the median mortgage loan for someone under 35 years old has dropped.8

So, even if many older Millennials have plans to buy a home, purchasing hurdles may keep them renting for the foreseeable future.

A new group of Millennials moves in

There’s also an entirely new group of Millennials just hitting their prime renter age and adding an additional two million renters to the market each year.

Younger Millennials between the ages of 20 to 28 are ready to move out of their parents’ houses and experience living on their own. But there’s one big problem: these younger Millennials are broke. They’re graduating college with an average of $37,000 in student loan debt, earn 20 percent less than Baby Boomers did at their age, and have an unemployment rate that’s nearly double the national average.9,10,11 When you start crunching the numbers, you can understand why 65 percent of younger Millennials rent based on financial needs.12

Younger Millennials are also highly mobile and require housing that allows them to pick up and move when needed. They’re more likely to move across state lines than other age demographics. And once these Millennials do find jobs, don’t expect them to stay too long. Millennials average seven jobs before the age of 29, and their median job tenure is just three years.13,14

Millennials aren’t going anywhere

Millennials will continue to drive apartment demand. Older Millennials may want to own homes, but with a tough housing market and rising interest rates, they may need to rent even as they get married and start families. And once these older Millennials do move on to homeownership, there’s an entirely new group of younger Millennials waiting in the wings to take their place. Younger Millennials still have 10 to 15 years left in the prime renter age range, and with their crippling debt and a tough job market, they’ll need affordable options for many years to come.

 

The Lesson Here:

As a result, you’ll continue to see strong demand for apartments through at least 2024, making an investment in multifamily a potential long-term option for investors looking to add real estate to their portfolios.

 
1  Rent.com. Millennial Generation Choosing to Rent. Accessed 11/17.
2  Pew Research Center. Millennials Overtake Baby Boomers as America’s Largest Generation. 4/25/16.
3  Axiometrics. Prime Renter Age Group will Continue to Drive Apartment Market. 10/17/17.
4  Bisnow. Peaking Millennials Could Reverse Urban Market Growth. 1/24/17.
5  Redfin. Home Sales Fell 3.5 Percent in July, the 22nd Consecutive Month to Post an Inventory Decline. 8/17/17.
6  Zillow. United States Home Prices & Values. 11/10/17.
7  NPR. Fed Raises Key Interest Rate For 4th Time Since 2015. 2017.
8  Business Insider. Buying a House is Getting Even Harder for Millennials. 1/17/17.
9  Forbes. Student Loan Debt in 2017: A $1.3 Trillion Crisis. 2/21/17.
10 USA Today. Millennials Earn 20% Less than Baby Boomers Did at Same Stage of Life. 1/13/17.
11 Bureau of Labor Statistics. Employment and Unemployment Among Youth Summary. 8/16/17.
12 Bisnow. Millennials To Remain The Driving Force In Apartment Demand Through 2024.2/3/17.
13 Bureau of Labor Statistics. America’s Young Adults at 29: Labor Market Activity, Education and Partner Status. 4/8/2016.
14 Bureau of Labor Statistics. Employee Tenure Summary. 9/22/16.

 
This information is educational in nature and does not constitute a financial promotion, investment advice, or an inducement or incitement to participate in any product, offering or investment. It is not intended to be used as a tool to determine your specific financial situation, tax status, investment objectives, investment experience, suitability for any specific investment, risk tolerance or investment profile. Resource is not adopting, making a recommendation for or endorsing any investment strategy or particular security.

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