The Future: Who Will Dominate Real Estate

As the housing market continues to pick up steam and climb out of the dark hole it was once in, many are wondering who will be the next biggest force in the market, the Millennials or the Boomers. While the Millennials unquestionably make up a huge segment of recent home buyers, they still face many barriers to home ownership that were unseen by previous generations.

Millennials, also knows as Generation Y, face many challenges and hurdles when considering a home purchase. First of all, enormous student debt, as well as credit card debt make saving seem impossible. Continued underemployment among college graduates and rising rents nationwide make saving actually impossible. In fact, according to a survey of recent home buyers, 22% of Millennials reported difficulty in saving the down payment, compared to only about 15% for Generation Y.

A recent report from Bloomberg listed the 13 United States cities considered unaffordable for Millennials. Of those 13, 6 were in California, including the entire top 5. Los Angeles came in at number 3, just behind the tech hubs of San Jose and San Francisco.

In spite of this, Millennials are making an impact. According to the National Association of Realtors 2015 Home Buyer & Seller Generational Trends report, Millennials represented the largest share of recent home buyers, at 32%. The Boomers, or those aged 50 to 68 came in second at 31%, with Generation X (35 to 49 years old) at 27%. The Silent Generation, or those aged 69 and up represented 10% of recent buyers. (Some may classify the Silent Generation as Boomers, which would raise their overall percentage to 41%, taking the top spot.)

One interesting statistic was that 13% of recent buyers bought a multi-generational home, and 37% of those were due to adult children moving back home with their parents. Yes, the vast majority of these are underemployed Millennials.

As the job prospects for Millennials improve, and the student debt gets paid off, Millennials will no doubt prove to be the dominant player in the real estate market. With the low inventory, staggering home prices and continually rising rents, they still have a ways to go.

For the Boomers, the path is much easier. First of all, due tot heir age and past life experiences, most are already homeowners. Second, as they retire, send their kids off to college and out of the house (hopefully), many are looking to downsize or move closer to friends and family. These are the two most popular factors currently leading Boomers to list their homes.

Boomers also have significantly more capital, often resulting from the sale of a previous home, and can offer larger down payments. When it comes to financing a home purchase, 88% of recent purchases were financed. Of those, the typical down payment was 10%. The lower down payment was far more common with buyers under 50, as the Boomers have maintained more traditional down payments of 20%. When it comes to all cash sales, the month of May saw only 24.6% of sales closed with all cash, which is the lowest level since November of 2009, according to RealtyTrac.. The level of institutional investors, or those that purchase at least 10 properties each month have also dropped to 2.4% of recent sales, the lowest figure ever recorded.

It should be noted, however, that foreign investment, especially in Los Angeles is on the rise. The Chinese were the primary foreign investors in U.S. real estate, and were responsible for 16% of all home closings last year. In total, Chinese buyers spent over $28 billion on U.S real estate. Of that, 35% was in California alone. The main factors for this investment are the great schools in the state, and the various industries offered, such as tech, film, agriculture, manufacturing and finance.

A positive sign is that Millennials do recognize the value of home ownership, and they do want it. When viewed as an investment, 80% of respondents viewed a home purchase as a good investment., and that is across all age demographics. Compared to stocks, 70% of respondents believe home ownership to be as good as or better than stocks.

Builders are beginning to take notice of the Boomers. According to the National Association of Home Builders, there has been a substantial increase in residential construction spending during the month of May. In fact, for multi-family construction, spending is up over 20% from May 2014. In terms of single-family homes, the increase was just over 11% from last year. Here in Los Angeles, inventory levels are still historically low, hovering around a 3-month supply. Hopefully, as the pace of single-family construction increases, the inventory will as well. The NAHB notes that the pace of multi-family construction spending is slowing, and they expect the funding for single-family homes to increase for the rest of the year.

In terms of sales, the month of May saw the highest level of existing home sales since 2009. For new home sales, the level was the highest since 2006, according to the National Association of Realtors®.

Older buyers, particularly the Boomers tend to often prefer newer homes, as they have fewer problems associated with them and require substantially less renovation and updating. Millennials however, often in search for the best deal, ware more inclined to consider a potential fixer.

According to the National Association of Realtors 2015 Home Buyer & Seller Generational Trends report, suburbs/subdivisions are still the most desirable home location, according to 53% or respondents. Small towns came in second, with 20%, followed by urban areas and city centers with just 16%.

As Millennials continue to come of age, enter their prime income earning and family producing years, they will unquestionably dominate the real estate market. However, as home prices continue to rise, and rents continue to limit the saving capacity of Millennials, the retiring Boomers will likely keep buying the expensive new houses in the Suburbs.

Please do not hesitate to contact me for further information. Also, read some of my past client testimonials and hear first hand about the quality of service I provide.

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About robertjrussellcompanies

International Real Estate Agent * Insurance Broker * Radio Talk Show Host * Public Speaker * find out about me - visit http://www.robertjrussellcompanies.com
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