Millennials To Remain The Driving Force In Apartment Demand Through 2024
It is no secret that Millennials favor renting over homeownership for a myriad of reasons, but there are growing concerns in the industry regarding aging Millennials' shift away from urban centers in favor of the suburbs.
While Millennials are aging (they now fall between the ages of 20 and 35) and will incrementally shift demand from renting to homeownership as they begin to start families, a large portion of the group has just barely hit their prime rental age this year.
In its economic outlook report for the year, Yardi Matrix reported that the number of Millennials expected to hit the prime renting ages of 20 to 34 will exceed 2 million this year. That’s nothing compared to the whopping 70 million expected to peak in 2024 — which means multifamily can expect solid demand from Millennials for at least seven years.
“Millennials remain a key to this strong [multifamily] outlook, as this generation will drive household formations in the coming years and — given their age and in some cases student debt — are already more likely to be renters than homeowners,” Ten-X quantitative strategist Chris Muoio said.
Rising Interest Rates
One factor that may slow older Millennials' transition from renters to first-time homebuyers this year is rising interest rates. Last year, the Federal Reserve moved rates 0.25% for the first time in 12 months, and though the Fed’s benchmark rate is still low in terms of historic standards, Fed officials project three quarter-point moves this year.
“This predilection toward renting for [Millennials] could then be amplified by rising interest rates. Rising rates will raise mortgage rates, making homeownership more expensive relative to renting,” Muoio said. “This will continue to fuel multifamily fundamentals and NOI growth, which investors find attractive.”
Census data shows that nearly one-third of Millennials still live at home with their parents, Muoio said, but those that do live independently are facing heavy debt and cost burdens that make homeownership seem more like a fantasy.
In a survey conducted by CBRE dissecting Millennials' live/work/play preferences across the globe, the firm found that though a small portion of Millennials rent for convenience, 65% are renting out of financial need.
The average college grad has approximately $35k in student debt. Couple that with the median income of Millennials after graduation being $40k a year, and you can see how the disproportionate numbers would deter Generation Y from seeking homeownership until debt is paid off.
That is not to say Millennials are not interested in homeownership, a fact that will grow increasingly apparent as Millennials continue to age, pay off debt, get married and start families — but this is still a long way off for the majority of the generation.