Millennials: A Generation of Renters?

The “American Dream” used to mean following a certain life trajectory and that included buying a home. But by some accounts, today’s young adults aren’t buying homes like previous generations did. They’re putting off other major life events, too, like marrying, or having children.

According to the Pew Research Center, 2014 was the first time since 1880 that adults age 18 to 34 were more likely to be living with their parents than in their own home with a spouse or partner. Millennials, the generation between the ages of 25 and 34, may be planning to buy a home at some point, but for now, many of them are choosing to rent, or live with parents or other relatives.

This trend may have several underlying causes, one of which is that Millennials who go to college are graduating with a lot more debt than their parents and grandparents, and they’re not finding great job opportunities in their chosen field.

Derek Thompson, a senior editor for The Atlantic, points out that college-educated middle-class Millennials are just one piece of the puzzle – many people of this generation grew up poor and live with their relatives out of necessity, not because they’re saving for a down payment on a home. And home ownership rates among all age groups are at a 50-year low; in the last quarter, only 63.7 percent of homes were owner-occupied.

Implications for Realtors and Landlords

Financial information website NerdWallet points out that perceptions about Millennial homeownership trends may be distorted. In the past 40 years, the median age for first-time homebuyers has increased only slightly – from 30.6 to 31- and two-thirds of Millennials are younger than 31. So a home-buying boom could be on the horizon, as this population ages.

Last year, Realtor.com predicted 2017 would herald an increase in mortgage rates that could discourage some people from buying. It also predicted that higher interest rates would make it more difficult for buyers to qualify for financing. Those factors, combined with young renters’ perceptions, may slow Millennial buying.

For its 2014 National Housing Survey, Fannie Mae asked young renters (age 18 to 39) what their biggest obstacle would be in obtaining a mortgage; 53 percent said insufficient credit score or credit history; 50 percent said affording the down payment or closing costs. And based on a typical starter home price of $167,800, 63 percent of young renters lacked the assets to cover a 5-percent down payment and closing costs.

Since the housing market crash of 2008, the number of renter-occupied homes has been steadily increasing and, in many markets, so have rents. Rent increases are expected to slow in 2017, and demand for multi-family housing is expected to increase slightly.

Considering all the factors that influence decisions about renting versus buying, it may be too soon to say how these markets will fare in the coming years and what choices Millennials will make about their housing. Another unknown factor that could have a big impact on housing is a proposed change to tax deductions.

A provisional White House budget would leave the mortgage interest deduction intact, but double the standard deduction. Granger MacDonald, National Association of Home Builders Chairman told Forbes that doubling the standard deduction would “marginalize the mortgage interest rate deduction” and lower home values. The National Association of Realtors has also expressed opposition to the proposed changes, saying homeowners could see “their home values plummet and their equity evaporate.”

Lusk Law, LLC, specializes in assisting landlords and property owners, helping them prepare for the unexpected and plan for success. Should a legal matter arise requiring litigation, we are ready to represent our clients in court. Our experienced attorneys have provided legal counsel and representation to landlords and business owners in Frederick County, Howard County, Baltimore County, Baltimore City, Carroll County, Washington County, and Anne Arundel County, and other counties in Maryland. Please call us at 443-535-9715 or fill out our contact form if you have any questions about this topic.

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