Millennials are likely to be a generation that prefer renting for most or all of their lives.
I had an experience a few months back at the movie theater that involved an interesting conversation between a mom and her daughter, that was in the millennials age group. After watching the movie “Big Short”, which chronicled the collapse of the housing market, I overheard a conversation between a mom and her millennial aged daughter complaining about how she hated the movie, it was a waste of her time and how she didn’t understand any of it and it was “two hours of her life she would never get back”. The mom said she liked it and must have known I was listening because she turned back and smiled back at me. The daughter responded that the only thing she learned was that she “will never buy a house”. And so goes the residual effects of the economic recession caused by the housing crisis. While most millennials did not directly participate in the real estate crash, I’m sure many did know family and friends that were negatively impacted, either by losing their homes or losing their jobs.
According to Fact Tank at the Pew Research Center, 2015 was the year the “Millennial” generation (Ages 18-34) surpassed the Baby Boom generation. As the numbers of Baby Boomers decrease, due to normal life expectancy, this trend will continue. The large numbers in this generation combined with other factors affecting their finances is why they are the renter generation and investing in apartments makes financial sense. The demand for apartment rentals and multi-family properties has been high. Not only does this generation have the numbers to make an impact, but this generation is dealing with economic factors the previous generations didn’t have to grapple with.
For starters, it’s become common logic that to get a decent paying job, it’s best to get a college degree. Just having a high school diploma will most likely not lead to a high-paying job due to the decrease in manufacturing in the USA and new technology that requires highly skilled, trained, and/or educated operators. Prior generations had the ability to get out of high school and work at a manufacturer for the rest of life and have job security, such with auto makers. That reality has changed due to the bail-out of the auto industry and the offshoring of jobs due to globalization. Sometimes a college degree doesn’t pay-off with a good paying job, but the graduate is now saddled with the education debt they will be paying for years to come.
The recession has made it harder for lenders to qualify borrowers to get a loan to purchase a house. In order to avoid another financial meltdown, the government has forced banks to be stricter in their loan qualification process. Combine that with people having a difficult time finding good paying jobs out of college, along with the debt from college and it’s no wonder that the homeownership rate has dropped.
I do predict this is likely to change but it will take several years. As long as lenders continue on their same path of conservative qualifying, I believe the homeownership rate will begin to increase after several years of consumers paying down debts. The effects of negative credit scores will get tempered with new issuance of consumer credit over time. The proliferation of credit counseling and credit improvement companies will aid consumers as well. Companies, such as Target and WalMart, raising the minimum wage and the city of Los Angeles raising the minimum wage to $15 per hour, will trigger increases in wages overall. After several years or longer of Millennials working to pay-off their education loans, their financial situation will eventually improve and allow for them to qualify for loans. Until this happens the millennials will continue to be the renter generation and this is why investing in apartments and multi-family properties makes sense.
Leave us a comment below and tell us if you agree and what you think.