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Driving Forces in Today’s Residential Real Estate Market

By Brian Kline | November 20, 2017

After six decades of being the primary driving force in the economy, the baby boomers are officially in decline and taking a back seat to the millennial generation. This is happening not only economically but in sheer numbers as well. There are 75.4 million millennials compared with 74.9 million baby boomers. Unless you specialize in retirement housing, it’s time to turn your attention to what the millennials are doing in the real estate market.

One of the most notable trends is that this generation is shifting its investing preference out of the stock market and into real estate. In 2007, about 66 percent of Americans were invested in stocks. Last year that dropped to a little over 50 percent. A 2017 survey conducted by Harris Interactive on behalf of RealtyShares found 55 percent of millennials are interested in investing in real estate and a full 85 percent consider real estate to be a good investment.

On a different front, a PwC report finds that wealthy individuals are more bullish on real estate going forward even in the current hot market. The sum total could indicate another bubble forming or that there is room remaining for further substantial growth. Either way, all investors should be paying attention to these important positive indicators.

The World as Millennials See It

Most millennials became adults, joined the workforce, or graduated from college during the Great Recession. Their experiences and views of America’s economy has been one of unemployment, watching the biggest stock market crash since the Great Depression, and watched housing prices decline for years only to rebound strongly.

It took eight years for the overall real estate market to recover but metro markets, where many millennials congregate, recovered much faster and have been hot markets for several years. Their view of the housing recovery is much shorter than for those in more distant markets. Additionally, this is a visual generation. They believe more in an asset they can see and feel than in stock market reports that fluctuate minute by minute. They may not see it as a liquid investment to build wealth but they do see a home as a tangible investment they can live in. However, 66 percent view flipping or managing real estate as too difficult and outside of their skill set. Even if they don’t invest for wealth, there are an estimated 50 million millennials that will be entering the future home buying market and are already the biggest segment of the market.

Growing Up with Uncertainty

The generation taking over no longer expects to have a career and pension. They expect automation to take over their jobs. Even highly skilled jobs are at least 20 percent repetitive with repetitive tasks being the first to be automated. Careers have given way to project-based jobs that typically last about four years. The mortgage industry must change its expectation of job stability being a cornerstone to qualifying for a loan. Staying repetitively employed is the new norm.

Qualifying for mortgages is the biggest obstacle in the way of millions of millennials becoming homeowners. Saving a 20 percent down payment for a $400,000 home is no simple task even for couples bringing in two incomes. Hopefully the mortgage industry will find ways to adapt to these new realities sooner rather than later.

Technology is also changing other aspects of the millennial buying experience. Particularly in the role that real estate brokers play. With almost every home available for initial viewing on the internet, millennials aren’t expecting brokers to play much of a role finding the right house for them. Instead, more and more buyers see the broker’s role as navigating the sale through negotiations, contracts, and paperwork. As a result, millennials are much more likely to negotiate broker fees than baby boomers did. They need to so that their buying dollars go further.

Millennials may just now being moving into their first homes but it’s a big step up from rented two bedroom apartments that cost more on a monthly basis than owning does. The residential real estate market is strong and prospering but there is a new generation in the driver’s seat.

Please leave a comment about what you think the key drivers are in today’s markets.

Author bio: Brian Kline has been investing in real estate for more than 35 years and writing about real estate investing for 10 years. He also draws upon 30 plus years of business experience including 12 years as a manager at Boeing Aircraft Company. Brian currently lives at Lake Cushman, Washington. A vacation destination, a few short miles from a national forest. With the Pacific Ocean a couple of miles in the opposite direction.

Brian Kline has been investing in real estate for more than 30 years and writing about real estate investing for seven years with articles listed on Yahoo Finance, Benzinga, and uRBN. Brian is a regular contributor at Realty Biz News
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