The housing market is undeniably in better shape these days. Demand is strong. Interest rates are incredibly low. Home prices have shown solid gains in many metropolitan areas. Some are even experiencing heated bidding wars.
But there’s still a potentially major spot for worry among real estate folks: Millennials.
Millennials, or Gen Y, are the generation of young adults born between the late ’70s and the early 2000s. They are of particular significance because of their size – an estimated 70 million – and because of their upcoming influence on major economic sectors like housing.
They’re a new breed indeed. Tech savvy, burdened with heavy college and credit card debt and entering a job market that’s not offering them much room for growth right now. Many still live at home with their parents while they slog through the first couple of years in the workforce, paying down debt and figuring out what’s next.
Their perspective and approach to consumerism in general is particularly interesting when you start to think of them as the home buyers of today or tomorrow. And while the Great Recession has been partially responsible for the lack of home buying among this age group, some are suggesting there is a more fundamental philosophy and lifestyle difference that suggests they don’t value these big purchases the same way their parents and grandparents do.
A recent article in The Atlantic, “The Cheapest Generation: Why Millennials aren’t buying cars or houses, and what that means for the economy,” explores what’s behind this and how it will impact the economy. From the article:
“But Millennials have turned against both cars and houses in dramatic and historic fashion. Just as car sales have plummeted among their age cohort, the share of young people getting their first mortgage between 2009 and 2011 is half what it was just 10 years ago, according to a Federal Reserve study.”
Of course, you have to wonder how much of this statistic was purely circumstantial. Ten years ago, lenders were underwriting mortgages with the same ease and frequency that bank tellers were handing out lollipops and candy. Also, the market has changed so much. Perhaps some of this cohort has witnessed either their parents or friends get into upside down situations with their homes or foreclosure. That can be pretty impressionable on a person.
The article goes on to look at the lifestyle differences with Millennials and talks about how they value more urban centers and less suburban “driving” cultures. They value the freedom renting affords them to pick up and move.
I have to say that I’m not worried.
Maybe it’s because I’m in Silicon Valley where we’ve witnessed thousands of Millennials buy their first homes the moment they got their big break at work (e.g., stock options at companies like Facebook, LinkedIn and Zynga). I just don’t buy the notion that given the money and opportunity, Millennials wouldn’t buy a home.
I do however, think that the value system of urban centers, public transportation and lifestyle flexibility is something we’ll see strongly impact real estate development and household formation in coming years.
What do you think – has homeownership lost its appeal with young adults?