Everywhere you look lately people are talking about my generation, “Millennials”. It’s the buzzword of the moment and every industry has a theory on what makes us tick. When it comes to renting vs. buying, millennials continue to renew their leases in lieu of purchasing which has led to rents in Chicago and other metropolitan cities skyrocketing. This trend has proven lucrative for building owners but how long can it last? Is the time for investors to sell now before the “shoulda, coulda, wouldas” start?
We are approaching a tipping point where the cost to rent is comparative to a mortgage and first time buyers, especially millennials, are catching on. As it stands, 5.2M renters say they expect to buy a home in 2015 up from 4.2M in 2014.
I heard Jonathan Miller talk recently on Bloomberg View regarding the millennial shift to homeownership. He cited rising rents, the potential increase in interest rates and housing prices being the main incentive for the millennials turning to purchasing a first time house. I couldn’t agree more but there are still challenges millennials face.
I read an article on MarketWatch that said millennials choosing to rent vs. buying a home could cost them more than $700,000 over the course of their lives. A rather staggering statistic when you think about it. That said, some people my age don’t feel they can afford to buy (citing high student loans as the main reason), and there’s always the challenge of getting first time financing. Some millennials also don’t want to get “stuck” in one place for too long and the thought of actually owning a home hasn’t really even registered yet.
That said, smaller, new condo construction is popping up everywhere in Chicago and the supply can barely keep up with the demand. FHA loans are an excellent incentive for first time buyers because it requires very little down.
For many long term building owners that were able to weather the housing bust, perhaps it’s time to consider an exit strategy. Don’t be afraid to look at your options and when in doubt, look at what the big boys are doing. Most investors who bought in the last five years have sold with tremendous returns. It’s a unique time, but even the millennials know, nothing lasts forever. Let’s face it; the outlook from the top of the mountain is far better than the plateau below.
In the end, it’s all about money, employment and general economic improvements which will push millennials towards buying and lead to rents plateauing, vacancies, and everything else that can keep a building owner up at night. Maybe it’s time to cash in your chips while you are ahead.
Brian Mond
Managing Director
follow me on twitter @brian_mond