When buying real estate it’s always prudent to look to the long-term, to try and identify growth trends that have longevity. It’s also prudent to get the best advice and work with professional real estate agents through the most successful referral realtor platform Upnest which has a multitude of favorable reviews.
One asset class which has been attracting considerable attention is multi-family properties. These assets have been one of the primary beneficiaries of the current economic expansion, the duration of which has now exceeded the 10-year mark. Even though properties are trading at historic highs there are several key demographic trends in the housing market which support expectations of continued growth in multi-family homes.
Millennials are changing the nature of the home buying market
The generation born between 1981 and 1996 is often referred to as “millennials”. They have been credited with changing or “disrupting” many traditional ideas or ways of doing business—and buying real estate is no different.
As general rules, millennials:
- prefer to live in a city area where the costs are relatively high and the home supply inelastic;
- are more likely to delay getting married and having children, two significant life events typically associated with homeownership;
- have reduced affordability of property purchases, owing to their high levels of debt, often carried from their college days; renting may be the only option for some;
- have specific purchase requirements that are hard to fulfill.
In short, millennials are less likely to buy their own home than in previous generations.
Affordability is a big challenge for many
As alluded to above, with the cost of buying real estate close to or at record highs, quite simply, many people can’t afford to buy their own home.
For example, from 2008 to 2018, National Census data shows that median home sales prices across the US rose 31.6%, yet average income rose only 5.7%. In some fast-growing markets prices have risen, even more, thereby preventing many potential new homeowners from entering the market.
Evidence from Census data also shows that homeownership rates, despite the ongoing economic expansion, have declined for many regions across the country. In fact, many are still below pre-recession highs, indicating that the recovery hasn’t benefited all.
The huge numbers of forthcoming retirees will cause a ‘Silver Tsunami’.
It is expected that, by 2035, some 33% of U.S. households will be headed by a person over the age of 65. A combination of longer life expectancy and a significant increase in the number of “baby boomers” retiring means that different housing options are needed.
There is an increasing preference from retirees, who in the coming years will account for some 79 million people nationwide, for rent. These retirees may be active adults looking for an urban environment or seeking to avoid the cost and hassle of home repairs. Or they may simply be empty-nesters seeking to downsize and sell their property with the help of Upnest whose reviews are a testimony to its success.
Indeed, National Census data shows that people over 55 represented the largest increase in numbers renting in the decade following the financial crisis (2007–2017). The figure grew by 38%, whereas in the 65-plus age group such growth was even greater at 65%.
This so-called “silver tsunami” is likely to spur long-term demand for urban or close-in properties with a strong mix of two- and three-bedroom floor layouts, various amenities, and walkable neighborhoods.
All in all, the combination of changes in demand occasioned by millennials and baby boomers, plus affordability issues, is changing the way Americans think about housing. Multi-family investors and operators who manage to capture the demand from these two demographics should be well-positioned to enjoy long term-gains.