Understanding Next Generation Renters

real estate, tips for real estate agents  /   /  By junjieshi

Next generation renters are a contradictory bunch. After all, some of them want the joys of ownership but not necessarily all the expenses and financial outlay that comes with it. Here are just a few of the unique facts of the next generation to join the rental community.

Next generation likes renting when they are young

When it comes to renting versus owning, millennials have staked their claim solidly on the rental side of the coin. The number of the next generation renting has increased from 37% in 2010 to 50% currently. What could be driving this stiff increase? A few of the reasons are tied directly to the economy. One, unemployment has decreased, thus giving millennials the ability to form households. Second, those households are moving out of their family homes and increasing the demand for rental housing. Third, there are households that are reforming as millennials who moved back with their parents are reclaiming their independence and their own addresses.

Other millennials are found in their parents or family homes, approximately 21% of them. Still only 26% of millennials fall into the category of homeownership, a decrease of almost 10%. Clearly, the millennials might claim they want their own homes, but their activity in the housing industry suggests a reluctance to make the leap. This generation lived through the great recession and they have long memories regarding the potential impact on their personal finances.

While next generation is staking their claim in rentals, Gen Y is taking over home ownership. According to the Multifamily Executive, 70% of Gen Y expect to own a home within the next five years. If this is an accurate reflection of the demand for housing, the inventory for both renters and owners will remain tight. Many believe that the millennials themselves will also begin to demand their stake in homeownership, further tightening the amount of available housing inventory.

One positives note, more millennials are working full-time, with roughly 27% of those earning anywhere from $50,000 to $74,999 annually. While that might seem like a significant amount, keep in mind that those high earners are paying a larger portion of their income to rent and another chunk to student loans. Thus these high earners are not expected to turn to homeownership in the near future, as their current financial demands limit their ability to save for future goals quickly.

Does this mean the housing industry is struggling to come back from the recession? In many ways, the answer is simply no. Those owners who cannot sell are simply taking their homes off the market for the time being. Others are being converted into rental stock, which might be back on the market in the future. The large demand for rental housing has shifted the focus of developers from new homes for purchase to new homes for rent.

“U.S. housing is more impacted by U.S. fundamentals,” explained Dr. Dan Geller developer of Money Anxiety Index. “And they are good. Housing starts are good, consumer confidence is still improving. Housing continues to grow gradually, slowly, but it continues to improve.”

So while it might take the next generation a little longer to move into home ownership, the overall economy is showing signs of strength. These improving fundamentals will only encourage renters to move into ownership overtime.

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