Since the recession 10 years ago, the U.S. economy is seeing tremendous economic growth. Confidence in the economy, job growth, and lowered interest rates have been factors in a strong real estate market. However, new trends are indicating that the U.S. real estate market may be headed in a different direction than seen before. Millennials and Generation Z’s, two of the newest groups to enter the real estate market are shifting it through their technological affinity, preferences, and adaptation to current inventory.
Real estate websites such as Zillow and Trulia are changing how consumers approach the buying process. These websites offer an online marketplace to view available properties from Multiple Listing Services (MLS) without the immediate need for a middleman. While this transparency and accessibility are desirable for consumers, real estate agents are forced to find new ways to stay relevant. Previously, access to real estate listings was held almost exclusively by agents or brokers. Although worrisome for real estate agents, consumers now seem to have more information and bargaining power than before.
Between a lack of homes available on the market and a higher proportion of buyers to sellers, new buyers are forced to shift their expectations when purchasing. As rental prices continue to increase, tenants are looking to buy. A small amount of available listings, coupled with very little construction on new single-family homes has been a source of frustration for first-time buyers. The intense demand is pricing many potential buyers out, forcing them to continue renting or move home until they have saved even more for a down payment. In the current real estate market, having the income and qualifications for a mortgage is just not enough.
So where are Millennials turning to for homes? Trends show that they make up the largest segment of luxury renters and buyers. However, this may be less to do with individual preference, and more because of a lack of choice otherwise. Nearly all new units built are luxury rentals. This squeezes the lower-end rental market and is leading to a higher amount of income going towards rent. In Los Angeles, the average income going towards rent is reaching 50%.
These trends seem to indicate potential trouble on the horizon more than positive adaptations for new home buyers and those renting.