I am a “Boomer.” Growing up, I came to believe that the biggest part of the American Dream was to own one’s own home and that, above all else, I should strive to buy a house as soon as I reached adulthood and was able to do so. This principle I passed on to my own children as well. And when my mother passed away, at 94, she was especially happy that all of her adult grandchildren owned their own homes. In speaking to my almost-adult grandchildren, however, I have come to understand that homeownership is no longer the American Dream for their generation.
Homeownership – A Thing of the Past?
Gen-X’ers and Millennials have come to see owning a home as more of a burden than an asset and perhaps something to which they may aspire in middle age or beyond. While we might think that they have come to this conclusion because of the great housing bust of 2008, with its multi-year repercussions, that is actually not the case. In talking with many from among these two generations, from all educational and socioeconomic backgrounds, I see that home-ownership is no longer the American Dream for them, for a variety of reasons:
- These young people understand that their career futures will be very different from ours. Indeed, researchers now say that they can expect to change not just jobs, but entire careers, perhaps 4-6 times in their working lives. Given this prospect, it does not make sense to establish “roots” in any specific community, tying up money into a huge asset that may be fully “non-liquid,” should they have to sell in order to move.
- Many of these individuals have postponed marriage and family, preferring instead to have relationships without permanent commitment. Those who do marry often postpone having children, as their careers demand more and more time. They see home-ownership as more important to those couples who intend to begin families.
- The flexibility of not owning a home is valuable to these two generations. If they tire of a neighborhood, or if they come to a point at which moving to another neighborhood is attractive, they can do so as soon as their lease expires.
- The freedom that comes with renting rather than owning is something these young people cherish, especially if that rental is an apartment or a condo. No yard work or exterior maintenance frees up a lot of time; when something breaks, the cost is borne by the landlord; vacationing is simpler – just pick up and go!
- They have done the math. A mortgage payment, along with taxes and insurance, as well as the inevitable repairs and maintenance, are more costly than monthly rental payments. And in an uncertain housing market, with its huge ups and downs, they prefer investing elsewhere.
What does all of this mean for the real estate market? Several things!
- If homeownership is no longer the American Dream for many members of at least these two generations, selling a suburban, middle-class home will become more difficult. The types of homes to which these adults will be attracted may be very different than existing construction. Smaller, more efficient urban dwellings, as opposed to larger, suburban homes will be more in demand. This is why multi-family construction is out-pacing single family home construction already.
- While one’s home was once a critical piece of a retirement portfolio, it no longer will be. Home values will never see the ascent that was realized by earlier generations.
- These adults will be looking for much cheaper homes when they do buy. Many of them have astronomical student loan debt and have not had the luxury of accumulating large down payments, nor do they have the ability to make a large mortgage payment.
It seems that the future for real estate may clearly be one of investing in the types of housing that will be in demand. And many Gen-X’ers and Millennials are coming to see this as a tool for realizing steady income and building an investment portfolio that will pay off in retirement. Real estate investment firms are banking on this, and they are probably right. Small investors can now find real estate investment companies in their own locales and put their money into something concrete that will always be in demand.
If home-ownership is no longer the American Dream, perhaps investing in real estate will be!