Rodolfo Delgado is the Co-Founder & CEO of Replay Listings, the first platform to find apartments for rent in NYC focused on unedited videos
Where are America’s millennials moving? Ask their parents. For the first time, over 50% of young adults now live with their parents. It’s unsurprising since millions of Americans recently lost their jobs and with or without employment, many have primarily remained in isolation for over half a year. The financial — and social — incentive to double-up on housing should not come as a surprise. There are three major factors affecting the number of young adults living at home — and a number of potential effects on the real estate market as we continue through this pandemic.
Spending More And Saving Less
Growing dependency on subscription services such as Wi-Fi, cell phone carriers, streaming and delivery services may make it harder for millennials to catch up with their finances, but lack of affordable housing options is especially difficult on budgets. High rents coupled with the pandemic’s arrival have millennials looking for affordable housing options, often finding comfort in temporary housing with their family members.
According to a 2018 Federal Reserve study, millennials are less well off than earlier generations. They tend to have lower earnings, fewer assets and less wealth than previous members of generations at the same age. The average American millennial has an $8,000 net worth. One cause for this is the tough job market many older millennials graduated into during the Great Recession. Student loans and a high cost of living also made it difficult for millennials to increase their savings.
Fewer Savings, Fewer Options
While there has been some decrease in apartment rental prices, it may not be enough to help in many cities. New York, for example, has an average salary of approximately $73,000 before taxes. The average cost of a studio apartment in Manhattan is $2,574 per month. A New Yorker living in a studio apartment would have to spend nearly 60% of their income on rent and still need a guarantor to get the landlord’s approval.
This creates fewer options for young adults who already deal with less overall wealth. In talking with a local real estate agent in New York, the anecdotal observations back up the data. This agent shares that many clients who express interest in renting an apartment end up moving with a family member — which appears to be the most popular temporary solution.
More Affordable Cities Aren’t Enough
Before the pandemic, there was a migration trend that saw people, including millennials, moving out of expensive cities. People were searching for more affordable cities in the south and west, leaving major metro areas. Hotspots such as New York, Chicago and Washington, D.C. were the cities millennials moved from most in 2018. Meanwhile, the largest millennial migration spread among cities such as Seattle, Denver and Austin.
Today’s pandemic market has a similar focus on affordability. Several surveys have found that most people attribute relocating to the fact that they could no longer afford current housing, rather than moving strictly because of the threat of Covid-19. A market correction in housing and financial stability are two of the main factors millennials consider when moving into metropolitan areas.
A spike in searches for bigger living spaces might indicate that the market is heading toward horizontal cities that offer ample square footage. However, it’s still unclear if migration out of major vertical cities should be attributed to Covid-19. I believe a price correction to properties value was due.
Potential Effects On The Housing Market
In what I would call a buyers’ market, many millennials cannot afford to purchase a property. An unstable working environment adds to the affordability issue and will likely paralyze those who wish to buy their first home. Rock-bottom interest rates mean getting approved for a home loan may be more challenging than usual as banks are flooded with applications for home loans and refinancing.
My prediction is that for millennials not at home, rentals will be the top choice over buying in the short/middle term. In the meantime, we’re in a period in which many will recalibrate and organize their financials for the months to come. I believe that during this time, we’ll see innovators cater to millennials’ needs by creating more shared spaces in rental buildings. After all, living in quarantine with mom and pop could easily spark a need for bigger and more social spaces.
There will be opportunities for those who can afford to buy, but many millennials are stuck planning a temporary solution to income loss and a lack of savings. This moment, as well as the past several years, will inevitably impact our future. How millennials and every other sector of the population live, behave and collaborate is evolving. These changes impact the development of a crucial space where we spend the vast majority of our time: home.