A lot has been made of the data that speaks to how Millennials prefer to rent, which has helped fuel the rental market as it relates to occupancy and rent growth.
Survey after survey suggests that Millennials prefer to rent for various reasons.
Here a few of the most notable:
- They prefer experience over “stuff”.
- Jobs are more mobile and flexible in that the noose has loosened on employers requiring their team members to be at a physical, commercial office space for “x” amount of time. As a result, Millennials do not want to be locked into a mortgage since they have some flexibility to move around should they so choose.
- They simply cannot afford the down payment.
- Credit restrictions are too tight.
- Some witnessed the homes of friends, family or perhaps their own parents get foreclosed on during the real estate bust of 2007-2008.
- They are weighed down with student debt.
- They prefer the amenities that an apartment community offers.
I dislike painting an entire generation with broad strokes, but the aforementioned is well documented as possible reasons why Millennials are resisting home ownership, if not choosing to rent outright.
With all of that being said, the tide may be starting to swing. According to the Wall Street Journal, the share of first time homebuyers in 2015 was at 32%, which represented the lowest level in 3 decades (the historical average is typically around 40%). In 2016, just one year later, that now number is now up to 35% which is a significant increase and is helping fuel the market for first time homebuyers.
According to Fannie Mae, nearly 42% of mortgages issued in 2017 are from first time home buyers with Millennials likely making up a large portion of that percentage. For comparison, this is up 11% when compared to 2011 and up 3% when compared to 2015. The arrow is on its way up, so what’s changed?
I do not dispute any of the reasons why someone would choose to rent over purchasing a home. These are personal choices, some of which are made out of preference, others out of necessity. Simply put, if you cannot afford to buy a home, you have to rent…there is no “choice” in the matter.
There are seasoned economists who look for trends to help builders, asset owners, property management companies and investors determine where the market is going, and where to put their money. Quite frankly, there are more qualified people than myself who can weigh the data and make qualified suggestions based on market trends. Having said that, may there be more evidence to suggest that what kept Millennials on the sidelines of homeownership had more to do with financial constraint as opposed to a lifestyle preference?
There was a perfect storm that may have been forcing them into the rental market for quite some time. A tight credit market, hefty student loan debt, large down payment requirements, limited supply in the startup home market and a labor market that is not keeping the pace with inflation, especially for those just starting out. With regulations easing a bit, we are starting to see more loan options available and builders seem to coming off the luxury market and back into the startup home space.
We may be approaching a market in which it will be proven that those who “preferred” to rent only chose to do so until the market became more affordable. When you were in your 20’s, did you “prefer” something because it was the best available option, only to change course as life unfolded.
Some of this reminds me of the brilliant ad in which a young couple states with authority that they will NEVER move to the suburbs. The commercial then flashes forward when said couple has a life with a house in the ‘burbs, 3 kids, a dog and mini-van.