Embrace millennials for prosperity

embrace millennials
Generational shifts (infpgraphic from nar.realtor)

Montgomery County Executive Marc Elrich’s recent remarks about millennials and housing doesn’t just speak volumes about politics and elected officials, but possibly reveals the future of housing and business in Montgomery County MD.  His “slip of the tongue” opposing building housing for millennials was not taken lightly and received plenty of pushback.  To be fair, Elrich has clarified his statement and is making amends (hamzakhan.me/blog/2019/1/26/mocowatch-elrich-meets-with-millennial-activists) by meeting with millennial activists who reside in the county.  Elrich should consider it a defining moment of his tenure and take the opportunity embrace millennials and the businesses that employ them to address the county’s housing and economic issues.

Millennials shouldn’t be pigeonholed just because their generation is misunderstood.  According to the National Association of Realtors, millennials are the largest segment of home buyers.  They account for more than one third of nationwide home buyers (Millennials Want the ‘Anti-Suburb Suburb’; magazine.realtor; February 26, 2016).  Jessica Lautz, NAR’s managing director of survey research stated, “Their buying power is huge…They are definitely a force in the market. They are overtaking the baby boomers.”

Affordable housing is an issue for every generation, including millennials.  According to the NAR, eighty-six percent of millennials “believe that buying a home is a good financial investment.”  However, like all home buyers, millennials are facing low home sale inventory, increasing home prices, and rising rents.  Additionally, many millennials have the heavy burden of student loan debt, which stifles their ability to rent, as well as save for a down payment to buy a home.  To put this into perspective, consider Zack Friedman’s report for Forbes indicating student loan debt approaches $1.5 trillion (Student Loan Debt Statistics In 2018: A $1.5 Trillion Crisis; forbes.com; June 13, 2018).  This makes student loan debt the “second highest consumer debt category” (mortgage debt is first). 

Embrace millennials to address housing issues

Millennials don’t expect cities to tear down older affordable housing to build new homes for them.  It’s quite the opposite.  As was reported by NAR research cited above (Millennials Want the ‘Anti-Suburb Suburb), many millennials are moving out of the city and opting to live in more affordable suburban neighborhoods. Instead of tearing down homes and disrupting communities, millennials are revitalizing older homes and invigorating forgotten neighborhoods. 

It has been established that millennials are currently driving the economy of housing, and they should not be dismissed.  According to the National Association of Realtors 2018 Home Buyer and Seller Generational Trends study (nar.realtor), millennials have been the most active generation buying homes for the past five years.  Millennials represented more than one-third of all home purchases in 2018.  It was pointed out that the number of millennials buying homes in urban areas is declining.  After peaking at 21 percent in 2015, only 15 percent of millennials purchased in an urban area during 2018 (only 2 percent buying a condo).

Embrace millennials to address economy

The millennial shift toward the suburbs is affecting business too.  Jim Fagan recently wrote about businesses chasing millennial talent (Millennials are re-migrating to the suburbs and their employers are following; westfaironlline.com; September 14, 2018).  He observed that as millennials are moving out of urban areas, their employers are following them.  Just as millennial migration is affecting residential real estate, it is also affecting commercial real estate and the urban landscape .

Demographics are not static and affect housing and the economy.  Millennials are a driving force in today’s housing and labor markets.  If Elrich is to address the county’s economy and housing issues, he should embrace millennials and the businesses that employ them.

By Dan Krell. Copyright © 2019.

Original published at https://dankrell.com/blog/2019/02/08/embrace-millennials-economic-prosperity/

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Disclaimer. This article is not intended to provide nor should it be relied upon for legal and financial advice. Readers should not rely solely on the information contained herein, as it does not purport to be comprehensive or render specific advice. Readers should consult with an attorney regarding local real estate laws and customs as they vary by state and jurisdiction. Using this article without permission is a violation of copyright laws.

Could generational differences trigger deflation of housing

home sale
As the population ages, could generational differences trigger a housing deflation?

Many understand that there are numerous factors that affect the real estate market.  Those who are interested may track the daily ups and downs of the stock, bond, or commodities markets; some look forward to reading the minutes of the Federal Reserve’s Open Market Committee meetings, and others may peruse the Fed’s “Beige Book.”  But some economists are suggesting that many are overlooking the most obvious factor that could impact the real estate market for years – the aging population.

As the Baby Boomers make way for Generation X, the generational population size difference will be noticed in a number of ways.  There is increasing discussion about the affect of the aging population on assets, specifically real estate and housing.  As the population ages, some experts expect a deflationary market due to the shifting generational demographics.  And a few imply that the deflationary effects of the great recession might pale in comparison to those of the generational shift.

In an October 2012 Realtor Magazine article, the Counselors of Real Estate® (an affiliate of the National Association of Realtors®) listed the “aging population” as the number one matter affecting real estate.  Although an aging population impacts a number of real estate sectors (such as retail and medical); the demand for housing will certainly be affected.  They define the shift geographically, where some regions gain over others.

Mary Ludgin, of Heitman LLC, describes the geographic shifts that may be associated with an aging population.  In her article “Shifting Demographics: Real Estate Investment Implications,” Ludgin forecasts increasing demand for apartments and offices mostly in downtown areas.  However, a population migration is expected to favor the “mountain west,” southwest, and southeast.  She expects high amenity cities to do well.

A working paper published by the Bank for International Security (Aging and Asset Prices, August 2010; bis.org), presents the theory and data linking age demographics and asset prices.  The paper asserts that because the Baby Boom generation is substantially larger than the preceding Swing generation (the WWII generation) and the subsequent Generation X, asset prices rose substantially during Boomers’ “active years;” and are expected to decrease during the declining years. The data suggests that Baby Boomers home buying activity pressured home prices to increase by as much as 40% during active years; and as the population ages, home prices are expected to decrease by as much as 30% in the next forty years.  Yet, some economists and prognosticators are hyping such deflation to occur in the next ten years.

Although the result of an aging population on housing sounds daunting, aging demographics is not the only force active upon home prices.  Although Japan is often cited as the poster child of negative influences of generational effects on home value; there are some economies, such as the UK, where home prices have transcended generational effects and made positive gains.

Even though attention focused on an aging Baby Boom generation has been about retirement and/or relocating, some have begun to talk about the generational shift’s effect on real estate and resulting home buying trends by Generation Xer’s and Yer’s, and Millennials.  Besides geographical shifts, localized effects that are often experienced include the trend of transformation and/or tear down of older homes that once met the needs of previous generations, to build modern and efficient dwellings to meet the needs of those who are actively purchasing homes.

by Dan Krell
© 2014

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Disclaimer. This article is not intended to provide nor should it be relied upon for legal and financial advice. Readers should not rely solely on the information contained herein, as it does not purport to be comprehensive or render specific advice. Readers should consult with an attorney regarding local real estate laws and customs as they vary by state and jurisdiction. Using this article without permission is a violation of copyright laws.