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Five Trends That Shape Rental Market in 2018

The housing market crash in 2008 reshaped the real estate as we know it. Millions of households defaulted on their mortgages and lost the status of homeowners. Thousands of people were forced to rent due to economic constraints. 10 years after, the market has recovered, the lending standards were eased and the economy is showing signs of the steady grows. However, the population of renters keeps growing, even in the atypical demographic groups. The housings and development traditions also took an unexpected turn. Traditional, high-yield markets are in decline, while peripheral markets are getting steam. In this article, I aim to explore the nature of market transformation.

Investors go South

Markets that used to propel the growth prior to 2008 is currently absent from the investment rankings. Major California markets of Los Angeles and San Francisco together with the megacities of the East Coast New York and Washington D.C. are no longer the top investment. According to Local Market Monitor, the scarcity of the inventory and overpriced property made them too expensive for a sound investment.

In contrast, the previously overlooked real estate markets of the Southern States, most notably Texas, is growing rapidly. Booming local economy and affordable housing led the increasing number of people to move here from other states. Basically, states like Texas and Florida are the last strongholds of homeownership. The relatively low taxes and low unemployment rates promote the influx of new residents.

Generational Shift

The recovery is characterized by new trends and housing preferences. Millennials are becoming the largest demographic group surpassing the baby boomers. This tech-savvy and innovative generation is becoming more economically active and searches for investment opportunities.

Suburban living no longer appeals to them, and unlike their parents, they are looking for infrastructure and cultural diversity of urban cores. The primary factors when choosing a home for individuals under 36 are proximity to jobs and quality of the neighborhood.

According to the Austin restate agent, Jason Bernknopf millennials spur urban revitalization:

“We didn’t have a downtown living area in the early 2000s. Now there’s huge apartment high-rises as well as condo high-rises, and more areas for people to shop and eat in the heart of town.”

Jeff Plous, an associate real estate broker at One Realty in Denver, outlines how metropolitan areas hold their grounds even in the wake of recession:

“The suburbs were hit really hard,” Plous says. “But the city itself wasn’t that bad. It took longer to sell, but people were still buying.”

More U.S. households are headed by renters than at any point since at least 1965, according to a new analysis of Census Bureau data by the Pew Research Center, a nonprofit think tank in Washington, D.C. “The total number of households in the United States grew by 7.6 million between 2006 and 2016,” it found. “

Millennial Renters Worldview

  • 68% of students graduate with a significant student loan. The average debt is around $30,100.
  • Not planning to buy a home
  • The suburban living doesn’t appeal to millennials, unlike their parents, they are looking for infrastructure and cultural diversity of urban cores.
  • The primary factors when choosing a home for individuals under 36 are the proximity of jobs and the quality of the neighborhood.
  • 90% of millennials search for the rental property online.

The homeownership rate is on the sharp decline for the past ten years. There are various reasons for that. One of them is the massive unemployment and underemployment of college graduates. 53% of recent college graduates are underemployed. They have to work jobs that do not require a bachelor degree. Only 27 percent of college grads have a job related to their major.

College graduates often find themselves with substantial college loans they are struggling to repay. 68% of students graduated with a significant student loan. The average debt is around $30,100. Those who manage to get a job, often find themselves in temp jobs or working as contractors, without health insurance or any social guarantees. These kind of jobs are unstable and does not encourage settling down. Millennials are highly mobile workforce moving between cities and states. As a result, most of them prefer to rent a place instead of buying one.

New Demography of Renters

According to Sarah Strochak, a research fellow in Urban Institute: “The number of households in the US is continuously increasing, but with growth in owner-occupied units stagnating, almost all the housing demand in recent years has been filled by rental units.”

Pew Research center found that groups which were previously not inclined to rent are massively switching to renting. That include white and middle-aged adults. In the same time the percentage of young adults, non-whites and less educated renting keep growing.

Young adults under 35 are still the dominant renting group. In 2006, 57% of all households run by people under 35 were renting. In 2016, this number raised to 65%. 41% of households headed by people in the age group from 35 to 44 rented their residence in 2017, up from 31% a decade earlier. The increase in the group of households headed by people from 44 to 64 is more moderate. It rose from 22% in 2006 to 28% in 2016. Baby-boomers are still conservative in their housing habits. The rental rate for them remained stable at approximately 20%.

Reinvention of Urban Cores

Urban cores are growing at a stronger rate than the surrounding suburbs. Cumulatively major urban areas attracted 1.52 person for every person in the surrounding suburb. Over the last 10 years, suburban areas grew by 5.5% while the metro areas added 6.1%. New York is leading this trend by adding 2.17 persons for every person added to its suburbs.

Millennials enhance those trends. Urban cores are much more attractive for them than the adjacent suburban areas. 33 largest metro areas gained 1.52 educated Millenials for each resident in the outlying suburb. In general, 27 of 33 major metro areas attracted more educated millennial residents than the surrounding suburban sprawl. Chicago is the main magnet of millennial migration, gaining 16 for every one added to the surrounding suburbs.

Urban cores attract millennials even in the stagnating metro areas. Metro areas like St. Louis, Detroit, Pittsburgh and Cleveland display the very slow or the negative growth. The city cores significantly outperform the surrounding suburbs. This might be due to the presence of prominent research universities in those cities.

Those demographics trends may be a hint for the declining Rust Belt cities that are quickly losing the population. If they reshape their urban policies and attract educated Millennials, it dramatically transforms their demographic situation.

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