The fact that millennials cannot buy their starter homes and are living at home with parents, who therefore cannot downsize from their family homes, is affecting the housing market in several ways.
“This is impacting the housing market by causing decreases in housing inventory, rising costs and lack of movement in the starter home market,” says Christopher Krell, a principal with Cassaday & Company Inc., a financial advisory firm in McLean, Va. “When the entry level buyers stop buying, it hurts the entire buying chain.”
On the rental side, multifamily construction is booming but there has been a surge in demand across all age groups, income levels and household types that is forcing prices up. At the same time, the report says, much of the rental construction has been aimed at the high-income market. “Rents [are] well out of reach of the typical renter making $35,000 a year,” the report says.
“A lot of consumers are sacrificing their 401(k) savings to buy a home,” says Michael Brady, founder and president of Generosity Wealth Management, a financial advisory firm in Boulder, Colo.
“They have to divert their resources to a future home,” he says, “but if they are renting they need the discipline to save for retirement and not spend it.”
Looking at the rental situation from an investors’ point of view, apartment buildings might be the place to be, according to Kenny Elkins, a wealth manager at Equity Concepts in Richmond, Va.
“REITs with multifamily housing are one of the strongest and fastest growing types of asset classes in real estate right now. It is a good opportunity for investors, as long as the REIT is diversified among many buildings,” Elkins says.
Housing challenges are hitting low-income families the hardest.
“Because of the widening gap between market-rate rents and the amounts many households can afford at the 30-percent-of-income standard, the number of cost-burdened renters hit 21.3 million in 2014. Even worse, 11.4 million of these households paid more than half their incomes for housing, a record high,” the report says.
“Low-income households with cost burdens face higher rates of housing instability, more often settle for poor-quality housing, and have to sacrifice other needs — including basic nutrition, health, and safety — to pay for their housing,” according to the report.