The current residential real estate market is one of the most interesting markets on record. The pandemic accelerated several underlying trends that were well underway, such as migration towards the suburbs and the increase in remote working situations. It also exacerbated the supply/demand dynamic in the market by quickly increasing the demand for new and used housing at the exact time in which supplies of residential single-family homes was hovering near historical lows.
However, there is another tremendous demographic change that has been taking place over the past five to ten years that has the potential to keep the demand for residential real estate high for an extended period of time. This change is the increasing influence of millennials in the home buying market.
As a group, millennials entered the housing market years later in their life than previous generations. In general, they graduated from college and entered the workforce with high levels of debt – primarily, but not limited to, student loan debt. In addition, they entered the workforce around the time in which the residential real estate market was trying to emerge from the global housing crisis of 2008/2009.
For almost a decade following that crisis, home ownership was either not feasible or was not necessarily viewed as a safe investment. All these factors combined to delay family formation and home buying. A recent Wall Street Journal article described some of the ways in which millennials are approaching the market. From the article: “For millennials, many of whom are getting married later in life, swimming in student-loan debt and facing soaring home prices, homeownership can feel more like a fantasy than an achievable goal.”
However, over the last several years, this situation has reversed, and we now see millennials entering the market in force. This group now makes up the single largest demographic source of demand for residential housing. Millennial buyers are approaching home buying in new and novel ways. For example, many millennials are teaming up with friends to purchase homes together. As detailed in the article, “Some first-time home buyers are taking a more creative route to make it happen—by pooling their finances with partners, friends or roommates.”
We’ve written about the millennial market dynamics in the past, and now these trends appear to be unfolding in full force. Without question, residential real estate has experienced tremendous growth over the last few years. However, we still believe the fundamentals for this market can remain robust for several years – if not more. It will take time for the construction industry to catch up with demand.
Real estate has always cycled back and forth between periods of hot demand followed by a cooling period. Certainly, a bit of cooling for the current market would be healthy – and we are experiencing a bit of that taking place now. However, we believe that the recent pullback in demand has been caused by buyers backing away from the market. It is likely not a sign of demand going away, but simply demand being deferred.
There continue to be several strong trends feeding the fundamentals of today’s market. The innate human drive to own a home is still alive and well. Financial reasons have delayed many millennials from entering the market. That has changed. This demographic will likely continue its move into home ownership, and the market will likely continue to innovate, in order to help make that happen.
Chris oversees business development, investor relations, and capital partnerships. With 25 years of experience in alternative investments, Chris has raised $250 million in assets. He’s served as Chief Compliance Officer, co-managed a Fund of Funds, and worked in operations and trading. Chris has been instrumental in growing four companies. Through firms like Sapourn Financial Services, Dekker Capital Management, and Diamond Peak Capital, he’s delivered solid absolute returns across varied market cycles.