If it seems like we spend a lot of time talking about millennials (your present day 20-to-30-somethings, loosely put), it’s because, well...they’re important! Millennials are the our recent graduates and increasingly the face of our workforce. They’re getting degrees, securing careers and settling down, just like the generations before them.
To the untrained eye, despite murmurs of student debt ceilings and employment rates, it might seem that millennials are just like the generations before them. But there’s a point that we as real estate investors need to pay mind to when it comes to millennials:
Millennials are holding the real estate market back.
At first glance, that statement seems to be blaming millennials. It’s really not. We keep talking about it because the state of millennials, both economically and in their mindset, continues to shape modern economics and markets whether we like it or not. While millennials aren’t entirely responsible for the sluggish real estate market, many proport that if they’d just buy homes already, the market could make a full recovery.
Unfortunately, it’s just not that simple.
Millennial Home Buying Hangups
Debts, Underemployment & Wage Stagnation
Student debt is a hot button issue. We’ve heard of students protesting for debt forgiveness when their private for-profit colleges go under, leaving them with a burdensome loan and no degree to show for it.
In the U.S., outstanding student debt currently sits at a whopping $1.2 trillion. How does that affect real estate? While studies show that by and large, most students can overcome their debt, manage it and move on to home ownership, there are a lot of factors that come into play. What was their degree in? How big of a loan was it? Were they able to find a job that pays decently?
- The average student debt is $30,000.
- The unemployment rate among millennials is about 6%: 13% or so if we count those who dropped out of the workforce.
- The underemployment rate is at nearly 50%.
Coupled together, these spell trouble for millennials. Not only do they struggle to find a job that both pays a living wage and allows them to cover their loans, but one that allows for savings — like for a home or retirement — is hard to come by, to say the least.
There’s also the issue of wage stagnation, that affects more than just millennials. Even as the cost of living increases, wages aren’t really shifting to make up for it — meaning those in once moderately paying, relatively comfortable jobs may find themselves living paycheck to paycheck.
Workers just don’t have money to spend, and when those workers are millennials just starting their lives (and bank accounts), it holds the economy back.
In fact, many (30.3%) of millennials are still living at home with their parents simply because they can’t afford to do anything else.
Combined, these issues have kept millennials away from 3 million homes’ worth of property demand.
“Underemployment and low salaries combined with high student debt and uncertainty about the future are a reality that is affecting the housing market. The demand is there, but until this age group sees higher salaries, lower debt levels and feelings of settlement, millennial participation in the housing market will be slow.”
— Doug Lebda, LendingTree founder and CEO
The Rise of the Renters
While many millennials still dream of being homeowners, renters have been experiencing a steady increase in numbers since 2006. Zillow offers some interesting data on the growth of the rental market, particularly as it relates to single-family homes. In fact, almost 1 in 5 single-family homes are now rentals.
This jump was largely caused by the housing market crash, in which investors swooped in to buy foreclosed properties as many former homeowners turning to renting. For real estate investors, the sluggish nature of the real estate market overall isn’t as burdensome if only because it’s created this continuing surge of renters.
Still, as millennial priorities shift in favor of renting independent of their economic situation, investors have a strong outlook for the future, even in real estate market recovery.
Economic Growth in Millennial Hotspots
There’s more good news. Millennials, despite all of their worries and debts, are the new face of the workforce. In places that attract millennial talent, the local economy as a whole seems to do better.
Memphis, as we’ve pointed out, was named a “best place” for millennials to live and work. Memphis, along with Houston and Dallas, which are also known for their attractiveness to young professionals, have some significantly improved real estate markets over many around the country. No matter where we go, if local economy is growing and attracting new people, new talent and new energy, an improving real estate market is not that far behind.
As much as some enjoy blaming millennials for the country’s economic woes, at the heart of the matter are complex factors that hold homebuyers hostage from achieving dreams of the past. Priorities are shifting, markets are changing, and it’s high time to pay attention to it all.
Do you feel that millennial home buying is necessary for market recovery? Share your opinion in the comments.