The Generational Differences Shaping Residential Real Estate
Owning a home has long been part of the American dream. But the impact of COVID-19 along with downward pressure on wages, rising interest rates, inflation, and uncertain career trajectories has changed the way people are buying property – and how they perceive of it in terms of an investment or asset. While we see plenty of discussion about renting being a “lifestyle choice” preferred for flexibility and choice location, in reality economic factors are driving the shift away from homeownership and towards renting or multi-generational living.
Born between 1946-64, Baby Boomers are a large, well-resourced cohort who are highly active in the residential real estate market – home ownership rates are about 77.8% for this generation. With many Boomers reaching or considering retirement age, we’re seeing a lot of activity in terms of empty nester “downsizing” – whether to a centrally located apartment or townhouse, or a “resort style” community with amenities – while others are sitting tight and are remodeling the family home in order to “age in place.” Many Boomers have large amounts of equity, often across multiple properties, and may consider their home or residential portfolio as an asset to draw upon for rental income, equity loans, or retirement and later-in-life planning needs. Overall, boomers are the most likely to sell a property, but given their reduced income rates should be strategic about how and when they sell – and what kind of property they purchase next.
A small but highly educated generation, Gen X is reaching its peak earning years, and has high homeownership rates of around 69%. While affordability is a struggle across the board, Gen X has the most high-earning dual income households, and is best placed to buy a family home in most markets – and is the most likely to consider building a rental portfolio. That said, Gen X has moved on from starter homes and into larger, more long-term family homes, so we’re seeing less movement from this age group. The fact that adult children may still be living with Gen X parents while attempting to save for their own home may also account for a slowdown in purchasing or selling among Gen X. This cohort has aging parents and young adult children to consider, and might also be receptive to large, spacious homes in suburban or exurban areas designed to accommodate multiple generations living under one roof. It’s important to note that these trends are national in nature, but indicative of the type of places that Gen Xers would prefer, even within the regional markets like our own St. Louis.
Millennials (Gen Y)
Millennials might be a precariously placed generation, with the 2008 recession in particular having affected wealth creation and job prospects, but they’re also the most highly educated cohort – and also the most likely to buy a home. Not only are do they represent the biggest share of homebuyers, but they also make up the biggest percentage of first-time homebuyers as well. However, high levels of student debt together with an increase in job hopping underscored by multiple recessions have seen many Millennials struggle to put together a down payment for a home.
While there are prevailing narratives on a national level that suggest that Millennials prefer the flexibility of renting, research actually indicates that 69% would rather buy than rent – and are feeling increased urgency to do so given the upward pressure on both rent and homeownership costs. When buying a home, this generation values location and connectivity, move-in readiness, and technology – including across the real estate buying and transaction process.
High levels of educational debt, low starting wages, the uncertainty of the labor market post-pandemic together with skyrocketing rent and home prices are just some of the reasons that more than half of adults under 30 (52%) are living at home with a parent. While 86% want to buy a home, and 45% want to do so within the next 5 years, their purchasing power is steadily decreasing – the average home is now more than 8x the yearly household income, up from a typical 5x amount.
However, like Millennials, Gen Z value novel and technological ways of approaching real estate transactions, and are more open to “creative” options when it comes to acquiring a home. Gen Z is open to purchasing a home through an auction, buying with friends, or buying a house to flip or to renovate and make it their own. Location and access to amenities matters, but with many young workers of this generation working remotely, they may also be more open to choosing a more affordable home in a rural setting or up-and-coming town – provided the ability to work from home is there.
As a real estate agent, it helps to understand where your clients are coming from, the existing home value trends in the St. Louis area, and how they approach each real estate transaction. With digital solutions and alternative purchasing approaches on the rise, it’s vital that property agents step in to ensure that clients are doing their due diligence and completing all required steps – including working with a reputable title company. What generational shifts have you seen among your clientele in the past year?