Young Americans on homeownership strike?
Marginalized financially, young adults push multifamily housing demand
They used to say never trust anyone over 30. Those words obviously rang true 20 years ago when the average 30-year-old typically managed to obtain a modicum of stability in their life in the form of a stable job and a mortgage.
But as ZeroHedge points out in this article, the old image of young adulthood is dying a slow death. And single-family home sale opportunities are going with it in some cases, although not for a lack of desire.
The Zero Hedge report describes America’s under-30 crowd as struggling with student debt, remaining unmarried and unemployed or underemployed. They also have a very strange relationship with housing — at times living at-home with relatives, partnering up with roommates or remaining renters for long periods of time.
So what does this mean for the housing market? There is good news and bad news. On one hand, multifamily seems to be coming back, market analysts say.
Jed Kolko, chief economist for Trulia (TRLA), said Friday multifamily-unit starts designated as "for rent" grew to the highest level in 15 years last year.
"That means lots of new apartment units coming onto the rental market in 2014," he explained.
Kolko estimates 282,000 multi-unit (2+) starts were built last year, up 25% from 2012 and the highest level recorded in 26 years.
The bad news is multifamily may be growing in popularity with more and more young people finding themselves unable to get on the property ladder. Many of these individuals still want to buy, but they are having trouble qualifying for a loan.
So what’s behind the numbers?
"Ninety-three percent of renters ages 18-to-34 say they want to own a home someday, but the reality is that after a recession lots of people don’t have the down payment," said Kolko."They can’t qualify for a mortgage and affordability is getting worse."
And it's a situation that's unlikely to improve with interest rates rising and home affordability on the decline.
This type of market may end up benefiting multifamily investors, managers and owners the most.
Kolko believes a certain type of renter is coming back this year as multifamily units open up.
"One of the things that happened in the recession is the share of young people living with their parents hit an all time high," he said. "They have begun to start to move out of their parents homes as their job prospects improve, so that’s creating more households and more demand for rentals. And we are seeing builders responding to that."
Kolko believes the level of multifamily construction experienced in 2013 is similar to levels reached in the height of the 2006 bubble. But there's a difference, back then 40% of multifamily construction was tied to condos -- now less than 10% is linked to condos, which shows a higher expectation of rental demand.
But is this age-group now confined to having a large segment that rents for life?
"I think it's circumstantial," Kolko said. "Young people were hit especially hard in the recession. Young people still have a long ways to go in the job market until they are back to where they were before the bubble," he explained.
Of course, they are dealing with economic and pricing trends that are difficult to maneuver around. As HousingWire's Trey Garrison points out in this blog: When analyzing income levels and median home prices in the U.S., homebuyers are now paying much more for their homes when compared to 1999 levels. This is even true years after the bubble bust.
The end result: less affordability long-term and more individuals stuck as renters.
But there's hope. When given a choice, most say they still want to buy.