It’s a good year to own rental property. Unfortunately, it’s also a tough year for being a millennial trying to break into the housing market. And the two go hand in hand. With the baby boomer generation reclaiming their dominance in acquisition of properties, millennials are turning back to single family home rentals. It’s an unusual trend that can’t last forever. But in the meantime, it’s blocking a generation from stacking equity.
Boomers Bought Over 10% More Homes Than Millennials in 2022
Millennials were just finding their footing at the top of the housing market when a global pandemic hit the world. And it didn’t take long for the baby boomer generation to take advantage of the sudden vacancy.
According to the National Association of Realtors, boomers regained their spot as the dominant force in the housing market, purchasing the lion’s share of homes from July 2021 through June 2022.
During that year, boomers snatched up 39% of homes on the market; a 29% increase over the previous year. By comparison, millennials purchased just 28% of homes on the market. The previous year, they were at 43%. And we’re likely to see a repeat of aggressive boomer acquisition this year.
The Almighty All-Cash Offer
The boomers have been sitting on their not-so-secret weapons all along: amassed home equity. Home equity can be used to make the coveted “all cash offer.” And that’s something the majority of millennials just can’t match, let alone compete against. Especially considering boomers have spent decades building their home equity.
Boomer Stagnation Driving Millennials to Single Family Home Rentals
But outside the housing market, seniors are staying anchored to their homes longer than previous generations. And this is further contributing to millennials’ housing woes. Add in higher mortgage rates and it’s the recipe for a brutal landscape.
It’s also the reason why millennials are maintaining interest in single family home rentals. While some millennial households are choosing these single family home rentals, others are forced into it by the unusual circumstances.
Those higher mortgage rates aren’t doing millennials any favors. Mortgage rates have more than doubled since 2021, outpacing the average apartment rental by a significant amount. As if the benefits of single family home rentals weren’t clear enough!
Things will get better for millennials. But with boomers aggressively buying up homes and anchoring in place, it could be quite the waiting game. And the longer millennials stay shut out of the housing market, the less time they have to stack the kind of equity their boomer predecessors are enjoying.
Millennials have often had the chips stacked against them in the economy. Looking at the factors that impacted their chances of homeownership, we’ve seen millennials endure:
- A Great Recession that hit just as they entered the workforce.
- A decline in newly built homes from 2010 to 2019 when construction created just over half as much as they had in each of the prior three decades.
- A global pandemic.
The Millennials’ Short Time in the Sun
For a brief moment around 2019, it seemed millennials had bucked the odds to dominate the housing market. The post-recession labor industry was robust, allowing many millennials their first crack at homeownership. As we mentioned, the global pandemic that followed in 2020 knocked the millennials from their place atop the mountain.
How the Pandemic Drove Millennials Back to Single Family Home Rentals
But the global pandemic impacted everyone. How were the baby boomers able to reclaim their spot amidst the same conditions? Simply put, the boomers were more well equipped to weather the storm.
More baby boomers already had stacked equity long before the pandemic hit. By comparison, millennials were new to the game.
But millennials were hit particularly hard by several factors that came along with the pandemic:
- Houses were still undersupplied – and supply chain disruptions exacerbated the problem.
- Mortgage rates were at near record lows, leaving the market highly competitive.
- The workforce was destabilized, leaving many millennials in a state of financial uncertainty.
Boomers Re-Evaluate a Rented Future
Though boomers are putting off the assisted living facilities for much longer than previous generations, they’ve also shown increased interest in renting apartments. Historically, the boomer generation has held a certain stigma for rental properties. But it appears they’ve softened their views, considering rental opportunities as viable retirement plans.
In the meantime, millennials are still seeking single family home rentals in droves. And with boomers starting to re-evaluate their rental prejudices, investors of multi-family properties stand to be the winners long-term. If you’re looking to invest in single family home rentals, multi-family properties, or other rental opportunities, reach out to one of our knowledgeable commercial real estate experts!