Real estate rental market trends vary based on factors such as geography, demographics, and economic conditions. Additionally, the impact that different generations have on the rental market cannot be overlooked as it is a huge contributing factor for the momentum we are seeing in the rental market today.
Millennials Delaying Home Ownership
Millennials make up the largest population in the real estate market right now. Specifically those between 28 and 34 years old are responsible for the high demand for apartment rentals over the last decade as they moved out of the family home, graduated college, and started their careers.
This generation is now reaching a point that, historically speaking, they would be transitioning from renters to homeowners. However, the current conditions of the single-family market are making it difficult for this generation to purchase their first home. Additionally, they have different priorities than previous generations at this age, such as traveling and growing their careers. This has also prolonged marriage and starting families. Single millennials are opting for a rental with more flexibility, less space, and often more luxury.
The volatile market following the pandemic where we experienced extreme spikes in home prices was soon followed by a sharp increase in mortgage rates. These factors have cooled down home buying, encouraging many people to remain renters. This has created a subgroup referred to as “forever renters.” Many millennials who grew up with the idea of owning their own home are reconsidering the possibility and assume they will rent forever.
Rising home prices and mortgage rates are not the only things encouraging millennials to remain renters. This is in part due to the transition to remote work environments which allows people to move around, travel, and experience different cities. Some companies, however, are requiring employees to come back to work in the office. Those that left the urban rental life during the pandemic will be forced back into urban rentals if they want to avoid a commute.
Gen Z Increases Renter Pool
The millennials who are choosing to rent for longer than previous generations will overlap with Gen Z entering the workforce. This will cause a swell in demand, though fortunately, 2023 is expected to break the record of number of rental units built in a year. The overabundance of apartments we will see completed this year will be necessary to keep up with the demand long term.
Gen Z face challenges as they enter the real estate market, such as high home prices and major student debt. However, a study by Rocket Mortgage found that the biggest obstacle for Gen Z might be their expectations. The survey found that 86.2% plan to buy a home, but think their home will cost 38.5% less than the median home value in the U.S. The sticker shock this generation will experience as they enter the home buying market will keep them renting at least for the short term.
Boomers Downsizing Opt for Rentals
Another generation impacting rental population trends are boomers. Baby boomers, now between the ages of 59-77, own the largest share of homes in America. As their generation entered the workforce, it was much more common to start a family and purchase a home. Now, many of them have retired, or are entering retirement, and might be considering selling their home and renting due to a variety of factors.
Depending on their financial situation they might be looking to sell and reduce monthly expenses to assist in retirement goals. Most boomers own a substantial amount of equity in their homes so the pressure to sell, downsize and use that money towards retirement income is high.
Health is also a factor as this generation ages and no longer has the ability to maintain a household. Downsizing to a home without stairs, or a smaller yard seems much more manageable as their mobility declines.
For the boomers who are healthy, mobile, and do not have to consider their financial situation, their motivator to rent might be their hobbies. Downsizing and renting offers a more flexible lifestyle to enjoy traveling, volunteering, or spending time with family and friends.
The combination of these generations, their needs, and desires certainly drives demand for rentals. As a real estate professional it is important to keep up with population trends and how they are impacting the real estate market. Looking at the lifestyle factors of these different generations can help you make more accurate predictions about what type of property to invest in.