by Buz Wolfe
Much has been written about Millennials – – the group of young adults born between 1981 and 1997 who have now surpassed Baby Boomers as the nation’s largest living generation. Millennials are affecting the national economy in a big way.
When it comes to real estate, Millennials have been slow to use their numbers to influence the housing market. In fact, Millennials have not, until recently, been entering the housing market in any significant way. I have attributed this in the past to four specific reasons.
First, many Millennials have been unemployed or at least under-employed. Second, many are also loaded up with student loan debt. Third, many have simply not seen the investment value of home ownership and have either elected to live at home or rent in very large numbers. Fourth, fewer Millennials are getting married at this age than those from previous generations – – approximately 42% of those age 25-35 got married last year as opposed to 82% of same aged Baby Boomers back in 1963.
In many respects, the housing market resembles the “food chain”. Millennials largely represent the “First Time Buyer” or “Entry Level Buyer” necessary to allow the next generation to “trade up” to larger and more expensive properties. This often enables older, more mature sellers – – often Baby Boomers – – to downsize into smaller and more manageable properties. A decline in First Time Home Buyers creates a problem with this ownership progression.
All of this, however, is beginning to change. Millennials, as a group, have tremendous bargaining power. Although largely starting at a financial deficit as to the Baby Boomer generation, their 75.4 million population has begun to increasingly enter the housing market. According to the National Association of Realtors, 2016 existing home sales hit the highest peak since 2006. First Time Home Buyers accounted for nearly one third of these sales.
A similar study by ValueInsured , cited by the Pennsylvania Association of Realtors, indicates that 62% of all Millennials think that the housing market will be better for them personally in 2017. Millennials who are not currently homeowners are actually the most optimistic about the housing market. Over 40% believe that they will be able to purchase a home in 2017.
Many Millennials, during the period of time in which they were probably first cognizant of economic conditions, observed the housing downturn of 2008-2012. For this reason, many of them questioned real estate and home ownership as a prudent investment. That, too, has changed with 85% of Millennials now believing that homes are a good investment. This confidence level leads all age groups in a NAR study.
Studies have shown that the net worth of an average homeowner in the USA is approximately $250,000 while the net worth of the average renter is only about $4500. Clearly, Millennials are beginning to recognize this reality as they enter the work force, marry and have children. In 2017, nearly half of Millennial home buyers will have at least one child – – up significantly from both last year and 2015.
So, the group believed to be the least engaged, most wired and most likely to take a new job are actually beginning to purchase homes and settle down. By 2030, they will number nearly 80 million. By that time, “Generation Z”, those people born in the early 2000’s, will actually surpass the Millennials in total size. Then, the food chain will change again.
*Ray L. “Buz” Wolfe, CRS has been Broker/Owner of his own firm since 1986. In 2015, he was again the Carlisle Area’s Top Producing Independent Broker.
**All information believed to be accurate but not guaranteed.
National Association of Realtors, Pennsylvania Association of Realtors, Central Penn Business Journal all used as information sources.