Millennials aren't buying homes - good or bad?

[Tyler Erickson]

As many of us are aware, millennials are more apt to renting rather than buying real estate. They (we?) are replacing baby boomers at a rapid rate, and are right behind Generation Z... Of course, Generation Z still has a while to develop before they are able to buy real estate or rent, so in the very near future, Millennials are going to be the largest generational demographic. 

From CNBC: "The homeownership rate among millennials ages 25 to 34 is around 8 percentage points lower than Gen Xers and baby boomers was in the same age group."

The Urban Institute did a study and reported that Millennials getting married later and less often plays a major role, as well as Millennials typically deciding to rent in higher income areas instead of the poorer areas. High rent + single incomes + median credit score of 640 = less homeownership. 

As investors, does this information change your perspective on investing? Or have you implemented a plan to adapt and flow with the changing real estate market?

As a whole, to the more experienced and economics-minded investors, could lower homeownership lead to more instability in the market? 

As @J Scott likes to say, there are always ways to capitalize on changes in the real estate market... What are your methods? 

[Kevin Dean]

@Tyler Erickson those are all great points. Based on the data you have provided my thoughts are that at a high level, it's a good time to be an investor!

On the Single Family Side: The market may become less fractured as large institutional investors see opportunity to scoop up single family homes and rent to millennial families who want to live in a single family home without being tied down by the large down payment and a mortgage. While these Institutional investors may have a lower cost of capital and can buy in bulk, they can be less efficient. Leaving room for smaller operators to provide superior service and returns.

On the Multifamily Side: This trend supports continued growth in renters looking for affordable housing coupled with amenities and community. I am interested to see if millennials at large will stay in apartment complexes, or if there will be an increased demand for single family rentals, making multifamily comparatively less valuable. 

https://www.weareapartments.org/ makes some interesting points on this topic. 

[Aaron Flake]

As a millennial myself I think it's a great time to be an investor. From what I've noticed, based on my friends group and daily Facebook posts is that a lot of millennials are just immature and don't look at the big picture or think ahead. Eventually some will get it and want to buy a house and then there will be some that are perfectly content with renting just like every other generation has. Myself, I'm going to scoop up as many good deals as I can and hold!

[Brian Ellis]

Most homes purchased in my market are being purchased by millennials. When listing my duplex for rent, id say 98% of the prospective tenants were over the age of 45.

Supply and demand has been high over the last few years. Bidding wars are still going on in some markets. Population grows too. I would argue that more millennials are trying to buy now, but a lot of them are having a tough time finding an affordable home.

[Jim K.]

I think the rich are going to keep getting richer and the poor are going to keep getting poorer and life will financially break more and more young people. I think easy public record searches are going to keep a growing number of people out of nicer multifamily, leading to higher demand for low-income housing in the future.

[Jaron Walling]

As a millennial I agree with @Brian Ellis . My friends have bought, wish to buy, or want to travel the world (like everyone else). Renting is the only option for that majority. Also, social media has a big influence on millennial choices. That generation doesn't like to read books or learn from older people because it's not "cool". 

[Frank Wong]

Great Info.  I hope they keep renting and I'll keep buying =).  If the heard is going left I am running right.  

[Russell Brazil]

Millenial home ownership rate is 8% below generation X. Hardly a big delta considering that most 22 year olds dont own homes. Oh, and once they hit age 35....there homeownership rate jumps to match gen Xs.

Homeownership rates have not drastically changed in almost 100 years. People make a big deal out of things like 2006 being the highest rate or earlier in this decade being the lowest rate...but we are talking about a range of 62% to 68%. So you take the long term average of around 65/66% and the highest and lowest rates have only been a couple percent above and below the long term average.

Is there an economic impact in that couple percent change? Sure. Is it materially significant? Unlikely. More so its good for the media to get clicks or views than anything else.

Remember, there are lies....there are dmaned lies, and then there are statistics. Stats like millenials having low home ownership rates sounds really interesting until you put it in perspective.

[Caleb Heimsoth]

@Tyler Erickson. I’m a millennial who owns homes, they just happen to be rentals. I will probably buy (and/or) sell many more homes before I buy one to live in. I like the flexibility of renting and not having to deal with maintenance issues. I’ve probably had 15 maintenance calls in the 16 months or so in the place where I live (most of them are small). I don’t have to deal with that, for my life right now (part time grad student, work full time, real estate) that’s probably for the best

[Robert Leonard]

@Tyler Erickson If millennials aren't buying homes, they must be renting, as they have to live somewhere. Sure, many are living with their parents longer, but eventually, they must leave the nest and find their own place. If they're not buying, they must be renting. 

Like you said, investing strategies might need to adjust to capitalize on new/changing opportunities. Maybe fix-and-flips aren't as popular because millennials aren't buying homes, but rental properties became all the rage. 

I personally think multifamily and short-term rentals will be interesting investing strategies if current trends continue.

Robert Leonard

[Russell Gronsky]

@Tyler Erickson, your data is a good start but I think it needs more context. While CNBC is probably correct that ownership in the 25-34 age group is 8% lower than Gen X, you have to remember that Millennials are one of the biggest generations in US history. So even though statistically, there might be an 8% gap from ownership with Gen X, how does that translate into the raw number of people buying homes? I'd GUESS it's probably similar to Gen X.

I can also tell you that millennials are driving up home prices in fun/hot neighborhoods in Baltimore. They are buying and I haven't seen any issues impacting my ARVs or ability to sell product. I'd guess that this is true for other cities as well.

One final thought: even if millennials in your area or choosing to rent, not buy, RE as an investment class is widely known across the country now days so even if a millennial won't buy the house, an investor will because there are investors that are happy to buy a line of cash flow. There are some considerations to account for of course, but generally speaking, there will be buyers, as long as you are in a market that is stable or growing.

[Russell Gronsky]

@Robert Leonard, I'm actually interested in your thoughts about how you see short-term rentals playing out over the next 5-10 years?

I say that because I see more and more markets passing laws or HOAs adding rules to make short term rentals unprofitable, profitable but cumbersome to manage or outright not allowing them. I run an AirBnB currently and so far, the area where I run it hasn't had any problems with it but I'm seeing the writing on the wall in some bigger markets and just wondering if you are seeing some light at the end of the tunnel to counter any of it?

[Robert Leonard]

@Russell Gronsky Unfortunately, I don't see some light at the end of the tunnel - I see things very similar to how you do. I see increasing scrutiny and regulation over AirBnB/short-term rentals. BUT, I do not think they're going away completely. The strategy will just have to be adapted. 

I think the trend of people, not just millennials, wanting to be able to travel and pick up and leave whenever is going to continue. Maybe it'll be short-term leases 1-6 months or more month-to-month leases that will become more popular. Maybe a new/better solution will replace AirBnB. Maybe traditional hotels will change their business models completely and provide a housing solution to compete with AirBnB better. I'm not sure how it'll play out, but it's going to be an interesting trend to watch play out over the next decade or two.

Robert Leonard

[Michael Ealy]

Originally posted by @Tyler Erickson:

As many of us are aware, millennials are more apt to renting rather than buying real estate. They (we?) are replacing baby boomers at a rapid rate, and are right behind Generation Z... Of course, Generation Z still has a while to develop before they are able to buy real estate or rent, so in the very near future, Millennials are going to be the largest generational demographic. 

From CNBC: "The homeownership rate among millennials ages 25 to 34 is around 8 percentage points lower than Gen Xers and baby boomers was in the same age group."

The Urban Institute did a study and reported that Millennials getting married later and less often plays a major role, as well as Millennials typically deciding to rent in higher income areas instead of the poorer areas. High rent + single incomes + median credit score of 640 = less homeownership. 

As investors, does this information change your perspective on investing? Or have you implemented a plan to adapt and flow with the changing real estate market?

As a whole, to the more experienced and economics-minded investors, could lower homeownership lead to more instability in the market? 

As @J Scott likes to say, there are always ways to capitalize on changes in the real estate market... What are your methods? 

 This is good for landlords. That's why I love real estate because people will always need a place to live. Whether people want to live or buy, real estate investors will always make money.

[Grant Rothenburger]

@Tyler Erickson I'm a millennial. So are my friends. Some are homeowners, some aren't but all WANT to be. I think a lot of us are still young, once more of us are 30+ home ownership rate will go up.

I also see A LOT of millennials living out the "YOLO" phase. That will end one day and reality will be well, real.

[Brian Ellis]

Originally posted by @Grant Rothenburger:

@Tyler Erickson I'm a millennial. So are my friends. Some are homeowners, some aren't but all WANT to be. I think a lot of us are still young, once more of us are 30+ home ownership rate will go up.

I also see A LOT of millennials living out the "YOLO" phase. That will end one day and reality will be well, real.

 Exactly my thoughts. Instead of saving for a future, a lot of the younger generation would rather boast their Benz, nights out at the club, and fancy meals on social media. 

[Steven Eitreim]

 Let me take this another direction.  The "greatest generation" were children of the depression, and therefore took great pride in saving.  They birthed the baby boomer generation, who, in my opinion, grew up in a time of great fiscal prosperity, even while their parents were cheap.  The boomers earned a great deal of money, maintained a good deal of the savings attitude for their own retirement, but did not teach their children the same.  My generation (Gen X) started to lose that fiscal sanity, and we've been progressively teaching our children worse and worse how to manage a dollar.  For that reason, I foresee future generations continue to exhibit poor money choices and have very little interest to save for a down payment.  This will become a landlord nation, and those who provide affordable housing with decent amenities will be rewarded (and ostracized by politicians, since fiscal "equality" will probably only continue to grow). 

I think there will be high demand in nice communities, even though millennials and Gen Y'ers prefer to text on their phones as opposed to talking to their friend right next to them. 

[Account Closed]

Originally posted by @Grant Rothenburger:

@Tyler Erickson I'm a millennial. So are my friends. Some are homeowners, some aren't but all WANT to be. I think a lot of us are still young, once more of us are 30+ home ownership rate will go up.

I also see A LOT of millennials living out the "YOLO" phase. That will end one day and reality will be well, real.

I think the lifestyle is definitevely changing, less and less people are willing to live all their life in the same city, they don't want to be tied to material investments and deal with toilet issues, they don't want to be tied to office work either. People travel more and more and want flexibility. With only a laptop many can work remotely from anywhere in the world. This is a trend that will develop exponentially for sure. Professional short term apartment rentals / apartment hotels are probably a good bet for RE investors. Airbnb is however going to considerably shrink imo. I see regulators cracking down big time on STR everywhere i look in the world, so i wouldn't base my investment on that business model

Real estate is not all rosy and riskless, many got wrecked not long ago so i wouldn't blame millenials for not jumping in especially with the current prices which absolutely do not make any sense. Even for multifamily investors, current cap rates are elusive and many will go bankrupt when the tech bubble will collapse and that interest rates will be raised a few points

Home ownership does not always make sense; money can also be invested in much more profitable ventures that RE

[Erik W.]

@Steven Eitreim, your response is interesting to me because everything I've read up until now says the exact opposite.  Many financial sites say Boomers are the ones who failed to save, most having less than $50,000 put away for retirement.  Gen X shows a higher level of saving and investing, in spite of caring for sometimes aging parents and kids simultaneously.  I dunno.  Stats can be manipulated certainly, but you're the first one I've seen to flip the generations.  Could be true.  
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I've also seen quite a bit of information that confirms what others are saying here about Millenials being just as likely to buy a home once they get into their 30s as the preceding generation.  They generally have more student loan debt and are delaying entry into the traditional "American Dream" which Gen X and Boomers did in our 20s.  But again, this is all relying on data 3rd hand.  
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How do we profit?  I think the same fundamentals of real estate investing still apply.  Buy in markets with stable, long-term growth characteristics.  Good access to transportation, a variety of positive economic drivers (manufacturing, retail, Govt, info tech, medical, colleges), decent weather, affordable utilities & entertainment, low crime, etc.  With this in mind, I think my area is a bargain by most standards. 
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My town meets many, if not all, of these characteristics.  I live in Springfield, MO, in Greene county which is the county seat.  Right on I-44 between Chicago and the West Coast (yes, this means we unfortunately get a lot of drug crime too....).  We have one major university, a minor but highly regarded private university, a half dozen colleges and an excellent VoTech/Community college.  Two large hospitals that have statewide clinics.  A diverse manufacturing and retail base, and for tourism we're 45 minutes away from Branson, MO (the Nashville of the Ozarks).  Our electricity rates are among the lowest in the nation, and the climate is relatively mild.  Winters have gotten less cold lately...it was 60 degrees this past weekend with a night time low of mid 30s.  Not at all bad for "winter."   We're growing by about 10%-15% per decade, and rents have been increasing nicely the past 5 or so years.  I'm buying and holding for the long term.
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I say we're a bargain because you can still buy a livable, 2-bedroom, 800 sq foot home for less than $30,000.  What is considered a "pig" in many markets is a basic clean, functional, and safe home for a renter.  Also, new 3-bed, 2-bath, 1300 sq ft ranch style homes fewer than 10 years old can be purchased for $90,000 - $100,000, which is very affordable as a starter home.

I'm not going to become a multi-millionaire flipper overnight, but there's plenty of room for steady, stable growth.

[Joe Splitrock]

@Tyler Erickson the "millenials are not buying homes" commentary has been around a while. I think it is a false narrative to say they won't buy or don't want to. It is more due to their age than any other factor. They are waiting longer to get married have kids, but once they do, they are buying houses. Millenials are 23-39 years old, so there are still some very young people in this mix too. They got hit by the great recession, which delayed home purchases for many. 

I don't think it is a matter of them not buying houses ever in the future, but more of a timing question.

A more important trend to watch is the baby boomers. As they are all retiring, they are looking for smaller size, single level living and maintenance free. There is not enough housing that meets their needs. 

[Jaron Walling]

@Grant Rothenburger That perspective is so true and I agree. In my opinion millennial's are waiting to purchase. 

[Jay Hinrichs]

@Joe Splitrock  Joe in my work a day world I would say that age group buys about 80% of my new construction

in Portland and in charleston.. and many for cash.. LOL  not sure where they get it.. there is a transfer of wealth going on within families though. 

4 of my 5 kids ( all this age bracket) own their own homes and did it on their own with no help from Daddy or Mommy. 

I think things are just a little later these days. marriages families etc etc.. but once those folks get married and have kiddos it good by renting hello buying a home..  And as someone mentioned above in the cool hip parts of many cities they dominate the buyers..

[Jay Hinrichs]

PS... Millennial are not stupid they wise up they will realize that rent is a waste of money. and mean for most folks if they do nothing else ( especially those in high priced markets.) if they do nothing else in real estate buying a home and paying it off is the best thing they can do instead of renting for 30 years having no deductions and having someone tell them how to live and or disrupt their lives when someone wants to sell ( mainly a SFR if they are renting).. they figure it out.. at least in high priced areas end of 30 years they maybe sitting on a 1 to 3 million dollar property free and clear or at least 500k.. or they can pay rent all their lives and have nothing. I mean for SFRs in the higher price point areas cost of owning many times is cheaper than renting on a monthly basis.. I look at my home in Lake Oswego rent probably 5 to 6k a month or my payment all in is 3,300.. and it went up 500k in the last 6 years.. and that is tax free money .. so i just cant see how buying in areas of historic appreciation is a bad thing or financially beneficial .

Renting while necessary for many is a dead end street anyway you look at financially.  ( unless your doing what some do and rent and then buy rentals.. )   but not everyone wants to be a landlord or is good at being one.. and many lose money in the landlord game so its a double whammy they are renting throwing money down the drain.. and they choose poorly on what rental they buy and make no money or lose money with those.. 

two sides of the coin  

[Ada Tor]

I see the American Dream slowly changing. The trend is towards mobility, career flexibility, less material possessions/minimalism, ability to travel, having less children or no children at all (i.e. less pressure to purchase a house), postponing or foregoing marriage... Younger folks are less focused on acquiring material wealth but rather on discovering a cause or a career that's meaningful to them. There is no longer the pressure to hit certain "milestones" in life.

Older generations see it as lack of responsibility or lack of maturity, but most millennials that I know are just as responsible (if not more so) than their parents, having witnessed the aftermath of the recession. They simply have different priorities in life. 

From an investor standpoint, it's a great time to be a landlord! 

[Paul Aqua]

@Tyler Erickson Hello! I fit that demographic ( I’m 23) and I don’t plan to buy a home for atleast the next 5 years or so. The reason being is I live in the Bay Area with roommates and my rent is cheap ( I pay 825 for a room as opposed to close to 3200 for a mortgage in a similar area. Even assuming I house hacked I still would be negative cash flowing roughly 800 dollars a month ). The main reason why I don’t want to buy a home is because I rather invest my money in more rental properties than in a house. There’s nothing wrong with homeownership but for my strategy for wealth building it just doesn’t make sense for me at this point in time.

[Ryan P. Kotschedoff]

@Tyler Erickson

I am only 16 years old and I am actually quite excited that generation Z will most likely rent more often than not. This will open up opportunities for more rental properties as an investor which will lead to an increase in cash flow amongst properties due to a lower demand in purchasing a home and a higher demand in renting. It could lower the home costs as well due to a lower demand in buying. But the impact of this won’t be substantial, but rather a small change in my opinion of course.