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Millennials Buying Home

Why Millennials Are Buying Fewer Homes

Millennials are currently the largest group of consumers in the US, and as such have a significant impact on businesses and the economy, an impact which is sure to grow stronger with time. As such, millennials are the frequent subject of speculation about their lifestyles and spending habits, and much has been made online of their supposed “killing” of various industries. Various stereotypes of millennials abound; they are thought of as having short attention spans and problems committing to jobs, but are also recognized for their desire to feel a sense of purpose and community in their professional lives. Whether or not millennials differ fundamentally from other generations when they were the same age remains an open question, but as the spending habits of young people influence various industries, businesses will have to adapt in order to meet the demands of their newest generation of customers.

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One such industry is real estate. For various reasons, millennials seem less likely than their parents’ generation to want to invest in purchasing a home—according to a ValueInsured Modern Homebuyer Survey, only 48% of millennials think that buying a home is a good investment. This is a sharp decline from two years prior, when 77% of the same generation believed in the value of purchasing a home. Many explanations have been proposed for the downward trend in millennials’ view of the value of real estate, but one popular theory is that millennials are a generation that values experiences over products, preferring to spend money on ephemeral things rather than physical objects. This theory has gained significant traction among people who seek to understand changes in young people’s spending habits, particularly when it comes to their reluctance to make expensive, permanent purchases like real estate.

When millennials are asked about their views on homeownership, however, the answers they give tend to refute this belief.

However, other theories have been proposed that have less to do with the unique characteristics of the millennial generation and more to do with external pressures. The previously mentioned survey offers different explanations for millennials’ reluctance to invest in homeownership. For instance, 49% of first-time homebuyers are concerned that rising mortgage rates could cause homes that are affordable now to become unaffordable in the future. Other economic anxieties factor into this reluctance to buy houses; 67% of first-time buyers worry that they will be unable to save enough money to buy a house they actually want to live in, and 52% believe that a home they buy now is likely to drop in value within a year. Additionally, 68% worry about the threat of another housing crisis, and 64% worry that they’ll suffer from buyer’s remorse after purchasing a home.

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Despite the reality of these widespread economic anxieties, however, many believe that millennials simply choose not to buy houses because they prioritize investing in experiences. When millennials are asked about their views on homeownership, however, the answers they give tend to refute this belief. One of the factors that delays homeownership for the millennial generation is the burden of financial obligations like student debt, which has exploded in recent years, and the slow rate of wage growth over the past several years. However, research has shown that when these financial burdens are lifted, such as when a person finishes paying off their student loans or gets a higher-paying job, rates of homeownership among millennials increase dramatically. That being said, even when the financial burdens faced by millennials are taken out of the equation, many millennials still can’t afford to buy a house. This is because the price of housing has also increased. And while a handful of millennials have taken to a “digital nomad” lifestyle, living in a mobile home and working remotely, this trend appeals to only a small number of people, as such a lifestyle can become immensely difficult both for social and practical reasons. In fact, this trend is likely driven not by millennials’ unique interest in experiences over things, but rather by financial difficulties, as the lifestyle of a “digital nomad” is one of the more affordable ways to live. Nevertheless, the myth that millennials’ spending habits are driven by preferences for experiences rather than financial difficulties persists, and continues to serve as a justification for blaming this generation for killing any number of industries.

Real Estate

How the Real Estate Landscape Will Change in 2020

A widely anticipated industry report, entitled Emerging Trends in Real Estate 2020, was just released by the Urban Land Institute and Pwc. According to the report, while real estate economists’ views on economic growth in the US are moderate, the real estate market should remain steady through 2021. The conclusions of the report are based on a survey conducted in August of 41 economists and analysts at 32 leading real estate organizations, who, despite warning signs of an impending recession and an escalation of the U.S.-China trade war, were generally optimistic about the future of real estate.

That being said, the report stresses the importance of adaptability to change and discipline as necessary factors for the industry to be able to remain strong in the face of a possible economic downturn and potential decreases in real estate demand over the next few years. Although blame for the last major recession was placed in part on the real estate industry for reckless lending practices and fraudulent activity, the report suggests that a future recession wouldn’t be the fault of the real estate industry. Over the past ten years the property sector has become disciplined, the report says, and any warning signs about an economic dip relate to factors that the real estate industry does not control.

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According to the report, a dynamic perspective on real estate and a rethinking of growth strategies are necessary for the real estate industry to thrive, and real estate prospects are highest in the cities of Austin, Raleigh, Nashville, and Boston. As housing needs for Millennials and Baby Boomers continue to change, multifamily and single-family housing will be in increased demand, and office spaces, hotels, and retail locations are likely to see a decline.

The report also observes the effects of the housing affordability crisis, which has the most impact in cities where the cost of living is high, including Washington, D.C., Boston, Los Angeles, San Francisco, and San Jose. Affordability is a problem not only for low-income households, but for the middle class as well, a section of the population which is rapidly shrinking as greater numbers of people fall into economic uncertainty. The effects of this crisis mean that multi-family households and co-habitation arrangements are likely to increase in popularity, changing the market somewhat.

Additionally, the report talks about the effects of climate change on real estate, and specifically points to the impact of extreme heat in urban areas. Rises in temperatures mean that cooling apartment buildings will become more expensive, and the threat of wildfires, droughts, and air pollution pose economic problems. Climate change is not the only cause of rises in extreme heat, the report claims, as increased urban development also contributes to the problem. For handling the problem, the report recommends the use of light-colored building materials and smart use of direct cooling from shade.

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As a result of difficulties with affordability, co-living is on the rise, not only for younger generations but for older ones as well. Though the trend is caused in large part by worsening economic conditions for most people, the report highlights the social benefits of co-living, which helps to create a sense of community among people, particularly in an age where technology has the power to make people feel more isolated.

The report claims the lifestyle enjoyed by young people in cities is spreading to suburban areas, which increasingly feature nightlife opportunities, and incorporate transit access, walkability, and abundant options for retail, restaurants, and recreations. As Baby Boomers are expected to live longer and stay more active than previous generations have, the implications for housing are positive. And as communities increasingly recognize the threat posed by environmental damage, they are developing a commitment to environmental and social principles including sustainable engineering and design and socially conscious business practices. 

As the federal government fails to update the country’s infrastructure, some individual states have announced a commitment to doing so instead, making them a more attractive opportunity for the real estate industry and laying the foundation for economic growth. Finally, the report finds that technology is having a strong impact throughout all types of property, as consumers increasingly demand technological solutions for productivity and efficiency.