Zillow Chief Economist Stan Humphries confirms what I"ve been saying for five years now; Millennials prefer renting to owning a home. Millennials can be defined as the generation born from in the early 1980s to the early 2000s. If you want to be more definitive, let's say 1981 through 2002 (or today's 12-33 year olds.) This is a HUGE demographic, some 80-90 million Americans.
They ain't buying homes. Here's why:
(1) older Millennials got burned in the real estate boom and bust last decade. They were the "last in" on the Federal Reserve-induced boom and bought at the top of the market. When the balloon popped, they got caught holding the bag. So many of them short sold those properties or lost them in foreclosure because...
(2) ...they don't have the income. 1in 7 can't find work and over 4 out of 10 of the best educated millennials are underemployed.
(3) they have a giant debt-load, thanks to the student loan program.
(4) Millennials are mobile, uncommitted, and untethered by choice. Laying down roots doesn't appeal to this financially-strapped generation. As they struggle to find meaningful, well-paying work, they are postponing marriage and child-rearing--two key factors which encourage home ownership.
What's that mean for San Diego real estate? As millennials postpone the home purchase decision, the median age of first-time home buyers will rise. The linked article about the Zillow research suggest it could rise to as high as 33 years old (nationally) by the end of the decade--that number was around 28 years old last decade. In San Diego, we typically add 3-4 years to the national average because of our high home prices. Stated simply, we may not feel the full effect of millenial homebuyers for another 15 years.
How can an investor capitalize on this? Give 'em what they want--rental housing. As wage inflation kicks in, there will be an upwards pressure on rents. As rents rise, the price of multi-family properties rises too. Investors can purchase 3-4 unit properties today, with 25% down, and have positive cash-flow based on existing rents. There are over two dozen properties for sale today in San Diego County, three of which are in Oceanside (my favorite investment location) which meet the positive cash-flow test.
I think you're going to see rents double in the next 10 years and I believe multi-family properties could increase as much as 50% in value during that time. Investors have a chance to double or triple their money in the next ten years. Contact me to analyze the numbers and risks associated with this advice.