Housing demand spans multiple generations. Residential real estate is expected to remain a hot issue and a highly sought-after asset for years to come.
Every generation has faced obstacles on their way to home ownership. The obstacles that each generation faces seem to be overcome. Homeownership has been proven time and again to be an excellent tool for building wealth.
Baby Boomers were stuck with high interest rates but they could refinance to build wealth. Gen Xers had the good fortune to reach prime home buying age just before the Great Recession, and they were forced to deal with the booms and busts. The Millennials came late to the party, paying the highest prices ever for housing. However, they had the lowest payments due to low mortgage rates. The future of Gen Z depends on many factors. But one thing is certain: they are ready to buy houses.
There are many reasons for optimism about the future of realty. The housing market is expected to continue strengthening as demand comes from many generations.
1. The millennial buyers are making it up for lost time
For a time, Millennials went through rites of passage that were different from those of previous generations. Finding a job during the Great Recession was difficult for many of them who had just graduated from high school or college. They either returned to school or postponed their adulthood. Some were saddled with higher loan debts, which prevented them from getting married or buying a home.
Statistics have been pointing in the wrong direction for a long time. The last year showed that they are no different from those who came before them. When they decided to start a new family, the desire for a home followed. They need to catch-up. Only 42 percent of Millennials at 30 own a home, compared to 48 percent for Gen Xers and 51 percent for Baby Boomers.
The Millennial generation still has a lot of catching up to do to their predecessors. Expect the Millennial home ownership trend to continue well beyond 2022.
2. The housing market continues to be driven by millennials
The millennial generation is the largest in history. In the past few years, their thirst for housing has become evident. According to the National Association of Realtors, 37 per cent of all buyers will be Millennials in 2021. The emergence of this trend coincided with the biggest cohort of Millennials reaching 30 years old in 2020. This means that in 2022, almost 15 millions will reach their prime buying age (32).
There are not enough houses available to meet this demand. FreddieMac says the housing shortage will reach 3.8 million units by the end 2020. This is a 52 percent rise compared to 2018. The Millennial generation is the most educated to date, and they have higher-paying jobs than previous generations. They can therefore afford to compete and pay for properties when they become available. The Millennials will continue to be a major force on the housing market in the coming 3 to 4 year.
3. Next year, Gen Zers are expected to start buying houses
Gen Z will account for one-third of the workforce by 2025. During the same period, the oldest Gen Z members will begin turning 30.
The survey data clearly shows that Gen Zers view homeownership in a different way than Millennials. Gen Zers’ perspective on space changed after the COVID-19 pandemic. Many Gen Zers had just graduated college and were forced to move back in with their families to survive the COVID-19 pandemic. This has in some ways accelerated their plans for homeownership.
According to Realtor.com 26 percent of Millennials surveyed changed their interest to buy a home post-pandemic. 45 percent have already started saving for their first house and 72 percent plan to own. Nearly half of Gen Zers plan to purchase their first home between the ages of 26-30. The demand for housing is expected to continue as Millennials, Gen Zers and other generations compete for property in the future.
4. Demand will not be affected by anticipated interest rate increases
Interest rates will surpass 4 percent in February 2022 for the first since 2019. Although rate increases have been cited as a concern for the housing market, an increase of 100 basis point won’t affect demand.
It is a common misconception that when interest rates rise, housing prices fall because of a decrease in demand. is more concerned with what people can pay each month than the value of a property. The monthly payments will not be dramatically different due to a 100 basis point increase. Interest rates are low compared to previous periods. If interest rates do not skyrocket, housing demand should continue.
Baby Boomers’ living conditions are changing
In the next three to four years, the first Baby Boomer cohort will reach the age of 80. This is a record-breaking number. In the past, retirees would sell their homes, downsize or move into retirement communities. Those born between 1946-1964, the Boomers, chose to age at home.
Baby Boomers are the largest owners of real estate in America. In 2020, 11.3 millions homeowners were 75 years old or older. This represented 13.5 percent all homeowners. AARP found that 77% of adults older than 50 years want to remain in their home as long as they can. This could have been exacerbated by the pandemic, particularly for younger boomers who saw their parents die in retirement and long-term care facilities. Also, they may have seen their parents isolated during lockdowns or strict policies.
We won’t be able to tell how this will affect their attitudes toward long-term facilities for several years. But one thing is sure: Aging in place is not an option forever. It will no longer be safe at some point. This is a question of when and not if. When the transition happens, Millennials will be prepared.
Real estate: Lifestyle choice meets wealth building mechanism
The generational transitions are going to play a major role in housing demand for many years to come. There’s good reason to think that the real-estate market will continue to be strong, as two new generations are ready to purchase homes. Gen Zers and younger Millennials are looking to buy homes. They are better at saving and investing because they use technology more efficiently. They can now afford to buy a home and know when to invest.
Baby boomers are also living longer, and want to age comfortably in their own homes. Many bought homes at 16 percent interest rates and refinanced them over time, building enormous equity. Even Gen Xers who were impacted by Great Recession could get back in the market and build equity.
Real estate is the most effective way to accumulate wealth, regardless of your generation.