The Generation Effect

There are many waves changing the tide of real estate. Among them are the Obama administration’s plan to convert foreclosed homes into rental units and the boom in the rent market from tech jobs. But the biggest factor shaping the rent market of the future might be demographics.

As the Baby Boomers retire, there’s a new group ready to take their place. They are called Generation Y, Millenials, or Echo Boomers.

Defined as those born between 1977-1989, they make up 70 million strong. That’s larger than the Baby Boomers, and three times the size of Generation X.

Generation Y is checking into the workforce. By 2025, Gen Yers will make up roughly 75% of the world’s workforce, according to a BPW Foundation’s study published last year.

Those 70 million individuals wield a spending power that exceeds $200 billion.

To forecast real estate, we can’t ignore such large numbers. So how does Generation Y affect the market? Are they primarily buyers or renters?

A myriad of studies have found some commonalities in this generation. Here are the ones that matter to real estate:

More Likely to Change Jobs or Careers
Gen Yers have grown up with the realization that they can mold their lives and careers into anything they want. They’ve seen technology-driven revolutions firsthand. They’ve been raised with high expectations to live the lifestyle of their dreams. As a result, they aren’t as hesitant as prior generations to switch jobs or even careers. This volatility in the workplace means they need easy mobility to chase the jobs they want. And that mobility comes easier with renting than buying.

Witnessed The Housing Bubble First-Hand
These young people grew up seeing home prices take a roller coaster ride from the high’s of 2006 to the crash 2 years later. They witnessed parents’ credit get wiped out, investment banks engage in unethical practices, and a slow economy as a result. They’re aware of the risks of homeownership. Consequently, they’re willing to wait for the right time to buy so they don’t make the same mistakes their parents made.

Student Debt That Outstrips Credit Card Debt
Gen Yers attended college when tuition prices were at historic highs. Add to that a very lax lending system that made student loans available to millions of students, and the result is an outstanding student debt total near $1 trillion. That’s more than outstanding credit card and mortgage debt. Until that number dwindles, Gen Yers are unlikely to add another debt (like a mortgage).

Waiting to Marry
Only 21% of Gen Yers say they are married. And according to the US Census Bureau there has been a significant increase in the number of women who have never been married, particularly in the 20-34 age bracket. With no rush to get married and start families, there’s less pressure for Millenials to become homeowners.

Urban vs. Suburban Living
Gen Yers show a preference for living in urban settings where they are in walking distance of everything. As children of the Baby Boomers, most have grown up in the suburbs. So when it comes time to choose for themselves where to live, many will want to try urban living.

Gross generalizations aside, most of Generation Y prefers to rent. It may be out of touch with the traditional American Dream, but the new generation has it’s own dreams to chase. Rather than rush to own a home and raise a family, they prefer to have a lifestyle that excites them.

And more than any legislative change or micro-trends, this demographic quality will be the biggest force that shapes the future of real estate.

The current rent market is picking up, and it’s partly because of Gen Yers entering the workforce. But there are millions that have yet to graduate, move out, and find their own residence. When that happens, the rent market will really be stimulated by the large demand.

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Population of Generation Y
http://online2.cartus.com/primetimes/200804/featured_article.html

Workforce (75% by 2025)
http://www.forbes.com/sites/85broads/2012/01/23/gen-y-workforce-and-workplace-are-out-of-sync/

Marriage Facts
http://www.forbes.com/sites/prospernow/2012/01/11/millennials-divorce-marriage/

Spending Power ($200 billion)
http://www2.honolulu.hawaii.edu/facdev/guidebk/teachtip/GenY.htm

Student Loan Outstanding Debt
http://www.usatoday.com/money/perfi/college/story/2011-10-19/student-loan-debt/50818676/1

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