Millennials have recently become the largest demographic in the United States, and their behavior is set to make a big impact in the real estate market. There are now over 75 million Millennials compared to 74.9 million Baby Boomers, a gap that will continue to widen. This generation shows different wants and desires in home ownership, and has the potential to change our real estate landscape forever. While Millennials are not all big homeowners today, we can expect to see a major shift in homeownership in the coming years. This cohort is incredibly tech savvy and city friendly. While it may seem like the cultural differences may have them deviating from the path of their parents, in the long run they may not be as different as generations past when it comes to the desire for homeownership. There is a huge opportunity for those prepared for the transition. Housing supply does not currently match the projected needs and wants of the Millennial population. The value of a six-bedroom home an hour outside of the urban core may shift to smaller, transit friendly smart home within a vibrant town center.
We are currently experiencing this in the outlying suburbs of Birmingham. The Baby Boomers are looking to down-size they are not finding ready buyers for their big homes on big lots, I call this "The Baby Boomer Sell Off". But all indications show that this is a temporary market corrrection and will take care of itself with time. Not since the post-war spike in home ownership has one generation been so primed to reinvent the real estate landscape.
1. Millennials Are Lagging in Home Ownership
American Modern Insurance Group surveyed 1,000 Millennials in the Chicago area to find out their real estate thoughts and plans. The study found that while 62.6 percent of the overall population owns a home according to the U.S. Census, only 34.1 percent of Millennials own a home.
Of those respondents who have never owned a home, 41 percent cited the costs as the primary reason. The hurdle of a down payment plus ongoing mortgage, taxes, insurance, utilities, and other costs have delayed Millennials purchasing their own homes. Further, 38 percent expressed concerns over the long-term investment value of a home and 25 percent cited inflated real estate values as reasons they do not currently own a home.
2. Millennials Love Urban Living
A 2014 report from Nielsen found that Millennials prefer “cities to suburbs” and “subways to driveways" and "more life and less space," with 40 percent saying they would like to live in an urban area in the future. For the first time since the 1920s, this led to urban growth outpacing growth outside of cities in the United States.
Cities like Austin, Salt Lake City, San Diego, Los Angeles, Denver, Birmingham, Atlanta and Washington, are drawing Millennials in droves. Thanks to robust urban living conveniences, growing public transit networks, and a glut of restaurants, bars, and cultural amenities, cities have a lot of appeal to Millennials. Such trends have given rise to startups like Nooklyn and Zumper that helps search for apartments, roommates, and more in major metro areas. Urban living for Millennials means renting, and with inflated home prices in these urban centers, that trend may continue for quite some time.
3. Millennials are Delaying Having Children
While Millennials are attracted to city centers, they have little need for the roomy houses and high quality schools that attracted previous generations to the suburbs. The number of teen births is down while the birth rate among women in their 30s and 40s is on the rise. Americans are also having fewer children in general.
With Millennials delaying marriage and children compared to previous generations, it is no surprise that Millennials are enjoying urban living, with resources and amenities that cater more to an adult population.
4. Millennials Plan to Own a Home in the Future
While most Millennials are not homeowners yet, a whopping 86 percent plan on owning a home someday. This is evidence that while Millennials have shown cultural differences to predecessor generations, they still want to own a home and live the ‘American Dream.’ In fact, 78 percent of survey respondents see homeownership as part of the American Dream.
This leads to an interesting divide in the real estate markets. Roughly two-thirds of Millennials do not own a home, but plan to in the future. That is roughly 50 million future homebuyers waiting on the sidelines for the right moment to buy into the market. This what will eventually provide the market for "The Baby Boomer Sell-Off".
5. Millennials May Save the Suburbs
Will Millennials follow in their parents’ footsteps and buy suburban homes, or will they stay in one of America’s booming urban cores? Delayed marriage and children coupled with uncertain economic conditions and high housing prices have created a pent-up demand for suburban houses. That demand is about to be released into the markets.
As Millennials become more established in their careers and earn more, weddings and babies will follow suit. In the previously mentioned Chicago study, researchers found that 67 percent of Millennial renters plan to move outside of the city to buy a home. Over half of Millennial Chicago renters who live in the heart of the city plan to move out for lower costs and other considerations.
With a move to the suburbs, we will see an increase in urban staples they have come to appreciate such as increased mass transit accessibility and mixed use developments. This gives nearby residents walkability and a connection to downtown cores though rail, convenient restaurants and bars near home, and more room to grow at a lower cost than living downtown.
We are already seeing hints of this in Birmingham, where builders near the Mountain Brook Villages, Homewood and Cahaba Village have been a big hit with both Millennials and Boomers looking for easy access to village living without the high cost of downtown. Researchers at Rice University’s Kinder Institute offer a similar prediction for the future, calling city-loving Millennials a myth exaggerated by a sluggish economy.
The potential energy of Millennials entering home ownership will have a massive impact on the market over the next decade. Cultural shifts between generations will lead to shifts in living preferences and timelines. They are a population with a defined sense of self and less limiting factors, bringing capital and motivation that will redefine what urban or suburban life means in America.
So, if you find yourself in the current Baby Boomer Sell-Off what are you to do; you can't wait for the Millennials to have baby’s and need your good schools? You're going to have to change the way your marketing your home. There are fewer buyers so you're going to have to bring the features and benefits of your home to the attention of this limited buyers pool. Putting your home in the MLS and putting a sign in your yard isn't going to get the job done. You're going to have to market you’re home the way BMW, Mercedes and Lexus market their automobiles; you’re going to have to create a demand, you're going to have to tell the buyer why your home is right for them. In other words you're going to have to market your home.
Kerry Grinkmeyer is a real estate agent in Birmingham, AL specializing in the marketing and sales of luxury homes. Kerry's a retired financial advisor, he sold his firm, one of the largest in the Ameriprise Financial Advisor system in 2005 to his son, daughter and nephew. Now he's building one of the largest boutique real estate agencies that he'll eventually sell to his grandchildren. He the author of the children’s book The Christmas Web- A Family Christmas Tradition. Kerry competes in the Senior Olympics in to 50M, 100M and 200M dash as well as the 5k and 10k time trial cycling events.
Kerry offers you his financial background, knowledge of the community, love of business and family and energy to assist you in one of the most important financial decisions you'll make in your lifetime.
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