A new study from HouseCanary shows how demographics shifts are reshaping demand for residential real estate.
“The vast imbalances in wealth and homeownership among Baby Boomers (age 55+) and Millennials (ages <35) are resulting in wide disparities in the demand for home buying versus renting,” according to J.P. Ackerman, President at HouseCanary. “Our analysis indicates that rising interest rates and home prices will exacerbate the situation as the Millennials’ ability to purchase homes will be severely jeopardized as monthly payments get further out of reach.” ?
Boomers have historically fueled the housing market as they entered each stage of life. They drove growth in the entry-level market during the 1970s and 1980s, the move-up market in the 1990s and 2000s, and will fuel household growth over the next 20 years due significant wealth and high homeownership rates.
Over the past year, Boomers accounted for a disproportionate amount of growth – 244% of new households nationally. ?
In contrast, household formation among Millennials was anemic, driven solely by renter households, which are entirely offset by the persisting decrease of Millennial homeowners due to limited savings, high debt and slow career growth. Probable interest rate increases will exacerbate the challenge young buyers face due to the large percentage of income dedicated to housing – a factor stimulating increased demand for rental units.
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The study demonstrated that more than 1 in 3 Millennials could no longer afford to buy a home at current prices if interest rates hit 6%. There are material differences in these trends across markets that are critical to understand in the investment process to serve the changing housing needs of Americans.
For example, in Washington, D.C., Millennial renter households grew by more than 4,000 households or 21% of the household growth creating demand for single family and multifamily rental units. In contrast, Boomer homebuyers in Miami accounted for 600% of all new households. ?
“Demographic shifts are causing significant change and new opportunities for real estate investors,” says HouseCanary CEO & Co-founder Jeremy Sicklick. “Addressing these shifts is critical for investors and developers to thrive in the future residential market given that the past is not prologue for the future. Our research indicates greater opportunity for development of for-sale residential to the aging population and for-rent residential to serve the younger generation.” ?