Laura Klauser sometimes finds herself looking at home listings online and can’t help but laugh.
“When I look at the cost of buying a place, especially on my own, it’s not doable,” said Klauser, 33, who rents an apartment in Avondale and works as a freelance makeup artist. “I’m currently in a place where I’m splitting rent with someone, so my living expenses are a lot lower.”
Klauser is among the almost 1 in 5 millennial renters who believe they will never own a home, according to a recent report from ApartmentList.com. Up from 12% a year ago, 18% of U.S. renters ages 24 to 39 said they expect they will always rent, and 74% of those renters said it’s because they cannot afford to buy a home.
Some attribute the rise to the COVID-19 pandemic and its impact on housing. With ongoing moratoriums on evictions, a surge in home sales and falling rents, the volatility of a rapidly shifting market have some millennials questioning the need for such a life-altering financial investment.
“I don’t want to be financially tied to something, just in case,” said South Shore resident Kelly Williams, 36. “I worry about things like that, sometimes probably more than I should. For now, this feels safe.”
Millennials are infamously saddled with student debt and have little savings. As the generation that came of age during the Great Recession and the housing market crash, millennials might see the notion of owning a home as riskier than it was for older cohorts.
“I have friends that are paying (the equivalent of) a mortgage in student loan debt or paying their rent in student loan debt,” Williams said. “How can they even think about buying a place and saving up enough money to put down a payment?”
Compared with almost 48% of millennials owning a home in 2020, 78.8% of baby boomers owned homes last year — the highest generational homeownership rate, according to the ApartmentList survey.
The silent generation, comprised of retirees mostly in their late 70s and 80s, dropped to 77.8%, as some sold their homes in favor of group living or moving in with family. Within Generation X, which includes adults between 40 and 55, almost 7 in 10 own homes.
By the time they reach 30 years old, 42% of millennials have bought a home, compared with 48% of Gen Xers and 51% of boomers at the same age.
The generational divide is greater for Black millennials, only 20% of whom owned homes in 2020. White millennial homeownership in the U.S. stood at 51%, while older Hispanic millennials are actually achieving homeownership at a higher rate than previous generations as they approach their 40s. Asians in their late 30s continue to lag behind older generations, but those in their early 30s are slightly ahead of their boomer counterparts.
Millennials have begun to close the gap, with half of new mortgages going to millennial buyers. But 4 in 10 of those surveyed by ApartmentList.com said the COVID-19 pandemic had a direct impact on their plans for homeownership, delaying or putting into question their search for a home.
Home prices have risen during the pandemic as shrinking housing inventory matched by high demand means homes are selling faster — and often above the asking price. Meanwhile, millennials have been hit particularly hard financially during the pandemic, with a higher rate of job loss and longer stretches of unemployment.
And the report does not express much enthusiasm for the notion that Generation Z — those 23 and younger — will reverse the trend.
“The economic inequalities that contribute to low millennial homeownership are strengthening, not weakening,” the report concludes.
Meanwhile, renting remains, for many, an easier option. Millennials and those in Generation Z have kept rent demand high, said Ben Creamer, founder and managing broker of Downtown Apartment Company.
“They are a generation that doesn’t mind renting because they like the flexibility it offers,” Creamer said. “And they are also fine with waiting to buy a home until they can afford the lifestyle they want.”
Rent prices have been falling during the pandemic, which means renters can afford larger apartments or buildings with nicer amenities, Creamer said.
Chicago is among the most affordable U.S. cities for renters, according to a January study by ApartmentGuide.com. The study looked at how many two-bedroom apartments were available in 2020 for below-average rent, and Chicago placed No. 24 behind cities including Toledo, Ohio; Plano, Texas; Lexington, Kentucky; Denver; St. Paul, Minnesota; San Diego; and Los Angeles.
Using data from ApartmentGuide.com and Rent.com’s listing inventory, the study found average rent for a two-bedroom apartment in Chicago was $3,102, and that 63% of available two-bedroom apartments were priced below that, said Brian Carberry, ApartmentGuide.com managing editor.
In Long Beach, California — the No. 1 city on the list — 93% of two-bedroom apartments were listed for below-average rent. Conversely, ApartmentGuide.com ranked Wichita, Kansas, as having the least affordable apartments in the U.S., with only 16% of apartments offered below its average rent.
Rents in Chicago dropped 4% in 2020, Carberry said. He believes there will be a rebound in rent prices, but eviction moratoriums and housing regulations prompted by the pandemic make it impossible to forecast when that might be.
In January, which is typically an indicator for how the spring market will perform, lease signings jumped by 25% compared with January 2020, Carberry said.
“Renters who were considering moving out of the city can now upgrade their living space without increasing their costs,” he said. “Concessions, which can range from two to four months of free rent, are no doubt contributing to the surge in demand for apartments in the city.”
The uncertainty and shock of COVID-19 could make millennials leery of ever committing to a home purchase, Creamer said. The flexibility of renting and incentives offered by large rental properties also keep it an attractive option.
“About 50% of our clients right now are upsizing their leases with either larger units or longer leases,” Creamer said. “When you add in other perks like free parking, reimbursement of moving expenses or gift card bonuses, renting looks pretty attractive right now.”
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Metro areas in Texas and Florida saw the largest population increases in U.S. over the past decade, as growing economies, a lower cost of living and attractive weather drew an inflex of domestic and international migrants.
Within the Lone Star State, Dallas, Houston and Austin grew by a combined total of 2.8 million from 2010 to 2019, according to a new research report by Freddie Mac. Miami and Orlando, Fla., expanded by more than 1 million people during the same period.
READ ALSO: A Close-Up on America’s Migration Trends
Perhaps counterintuitively, these types of demographic changes do not seem to have a direct impact on housing prices. According to a regression analysis by the report, a 1 percent boost in population drives home prices up by only 0.03 percent. On the other hand, a 1 percent increase in per capita income leads to a 1.5 percent rise in housing prices, while increasing the per capital housing stock leads to a significant reduction in prices.
TOP GROWING CITIES
Other metro areas that made the top 10 list for absolute population growth included Phoenix, Atlanta, Washington, D.C., Seattle, and Denver. In the three-period from 2017 to 2019, Dallas, Phoenix and Houston topped the list.
Breaking down the numbers further, the report by the government-sponsored enterprise found that net migration tended to be the largest driver of population growth in the urban centers that had grown the most. High migration was especially evident in Orlando—where it drove 78 percent of the population growth in the past decade, divided equally between domestic and international arrivals—as well as Miami, Austin and Phoenix.
Robust growth in the South and West was mirrored by far more tepid expansion in the Northeast and the Midwest. From 2017 to 2019, population in the South and West grew at seven times the rate of the Northeast and Midwest. In 2019, the population of the Northeast actually shrank by 0.11 percent year-over-year, while the Midwest grew by just 0.14 percent.
The South and West, by contrast, posted growth of 0.81 percent and 0.66 percent, respectively. Within the South, Texas, Florida and Georgia saw the largest additions of people, while Arizona, Washington and Nevada dominated growth in the West.
Migration accounted for the lion’s share of the population increase in the South. In the West, despite the inclusion of migration-heavy Phoenix, population growth tends to be driven by the fact that births outnumber deaths.
Freddie Mac also highlights a general movement of people from the cities and into the suburbs, which grew by annual rates of 0.3 percent and 0.7 percent, respectively, in 2019. It’s too early to tell whether an urban exodus that picked up during the pandemic will become a permanent trend, the report notes.
One long-term trend to watch has been a steady decline in overall domestic migration rates. The years 2018 to 2019 saw the lowest migration rate on record at 9.8 percent, while the share of movers aged 25 to 34 dropped from roughly 30 percent in 1970 to less than 20 percent in 2019.
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In a new research video from Marcus & Millichap, John Chang gives a positive outlook for both economic and commercial real estate growth this year.
Many economists aren’t just expecting a recovery this year—but one with the potential for significant economic growth. In a new research video, John Chang, SVP and director of research services from Marcus & Millichap, gives a positive outlook for the economy and the commercial real estate sector based on new reports from leading economists.
“Over the last year, we have navigated numerous, very serious challenges, but the outlook for 2021 holds great promise for the economy and for commercial real estate,” Chang says in the video. “Looking at the economy, the outlook is strengthening dramatically. In fact, most economists are now forecasting that 2021 will deliver the strongest growth since 1984.”
Chang outlines three underlies as the catalyst for growth this year. Stimulus is at the top of the list. Following the $2.2 trillion CARES Act package in March 2020, Congress passed an additional stimulus bill in December valued at $900 billion. Now, a third round of stimulus is being discussed. President Biden is pushing a $1.9 trillion round, but Chang expects the ultimate bill to be lower. “There is considerable debate over whether there is enough congressional support for that much of an infusion,” says Chang, saying that a smaller package totaling around $760 billion could be negotiated.
Still an additional round of stimulus will come with major economy-boosting benefits. “The new round of stimulus would likely include stimulus checks. They are suggesting about $1,400 on top of the $600 already in process,” says Chang. “I am just speculating here, but the new stimulus could expand or extend federal unemployment benefits.”
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Although the debate over the stimulus package has focused on stimulus checks, there is more value in expanding unemployment benefits. “Janet Yellen, the former chairman of the Federal Reserve and the expected Treasury Secretary, has already indicated that she believes the federal unemployment benefits will deliver the biggest bang for the buck,” says Chang. “Additional stimulus checks and more unemployment benefits will give the economy another boost, increasing consumption and helping people that were hit the hardest by the pandemic to cover their expenses.”
The vaccine is another reason that growth is on the horizon. “We are making substantive headway toward inoculating the US population. Although there have been setbacks and the process is not going as quickly as hoped, many believe the Biden Administration will more aggressively pursue measures to get the pandemic under control,” says Chang.
Finally, renewed economic confidence will also help give the economy a boost. According to Chang, there is $4.5 trillion in savings and money market accounts that represent the pent-up demand in the market. This funding will help to increase consumer spending once people feel safe again.
“As these three factors align, the potential impact on the commercial real estate market could be enormous. In the second half of 2021, assuming that we achieve a critical mass of vaccine distribution, we could see stores, hotels and entertainment venues reopen,” says Chang. “That would bring back jobs and spending, and in turn unlock household formation, creating demand for apartments.” The economic growth will also help to drive shopping center and travel demand, and as the economy strengthens, companies will launch new office strategies.
All asset classes are set to benefit. “If the economic growth gets even close to the 5%, 6% or 6.5% growth rates that I am seeing from many well-known economists, then the prospects of a major real estate revival in 2021 will be very positive,” says Chang. “That would set the stage for 2022 and beyond.”
By Kelsi Maree Borland
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L5 Real Estate Investments, LLC is a privately held investment firm focused on stable, income producing multi-family opportunities in emerging U.S. markets.