For years, it’s been widely accepted that owning a home resides at the core of the American Dream, yet studies conducted by the Urban Institute report that 53% of millennials today cannot afford a home as they can’t even afford a standard 20% down payment. Between escalating healthcare costs and burdensome student loans, the average millennial would take up to two decades to save up for a down payment. The dream of owning a home may seem to be crumbling, yet based on these startling numbers, it is clear that the desire for financial stability is as crucial as ever.
While roughly 80% of millennials don’t expect to receive benefits from current Social Security policies, the pursuit of financial security and growth is still very much attainable through home ownership and rentals. Thanks to the magical 30-year fixed loan rate, maximizing savings’ funds can be done through remote control retirement, one of the many innovative strategies to be presented at the ICG Real Estate 1-Day Expo in San Francisco, U.S.
Dealing with the Unstable Concept of Financial Stability for the American Dream
As inflation and increased cost-of-living may pose as threats to buying a home, single-family home rentals revive the financial success “dream” as the most liquid type of real-estate on the market. Join us this September 7th, 2019 at South San Francisco Conference Center to learn how to leverage single-family rentals to your financial benefit while:
- Getting experts’ strategies and opinions
- Navigating taxes, loans, new markets, and more
- Networking with like-minded investors
- Exploring new market trends
- Participating in collaborative Q & A.
Just as technology advances year after year, it’s only natural that real-estate markets evolve with each generation, yet the result of a sound investment is a constant: financial success. Despite the negativity surrounding real-estate, there is still much to be discovered. Luckily, we are devoted to doing just that.
Whether it be through podcasts or interactive conferences, ICG is can help you invest in single-family rentals and guide you through a minimum-risk process designed to fit even the most inexperienced and/or busy rental owner. No matter your age, it’s not too late to start investing in your future. Register today before space runs out and build your own future on your own dream. Learn more with our podcasts and webinars in our Membership area where we outline strategies in more depth.
In a blog on RentCafe, by Nadia Balint, from April 2018, this is some of the information shared:
“The U.S. housing market has gone through nothing short of a transformation in the last decade. The number of people renting their abode has increased significantly, in some cities surpassing the number of homeowners. The housing market quickly responded to this shift by adding millions of rental units in just a few years, with many U.S. cities witnessing a frenzy of apartment construction.
The most interesting part of this transformation, however, was the fact that the rental market expanded even faster horizontally than it did vertically. For the better part of the decade ending in 2016, single-family homes for rent were the fastest growing type of rental in the U.S., outpacing the formidable apartment boom seen throughout the country.
According to U.S. Census estimates, the number of single-family rentals (SFR) in the U.S. grew by 31% in the ten year period immediately following the housing crisis (2007 to 2016), while multifamily rentals (MFR) grew by 14%. In net numbers, single-family rentals in the U.S. increased by 3.6 million units in ten years, more than rental apartments, which increased by 3.2 million units. As of 2016, the U.S. Census counted a total of over 15 million single-family homes for rent in the United States and a total of over 26 million apartments for rent.”
Oklahoma City leads the 10 Top Metros with the largest share of Single Family Home Rentals:
This is very likely helped by the tendency of many Millennials to rent instead of buy. Millennials have not been valuing home ownership as much as previous generations. Many of them value flexibility and the ability to move. Nevertheless, many Millennials are getting into the family-formation phase of their lives, and thus prefer single-family homes with a yard for the kids, dog etc.
All this dovetails perfectly into our investment philosophy: buy single-family homes in good areas in good large metropolitan areas, finance them with 30-year fixed rate loans (which never keep up with inflation) whenever possible, and hold. That will vastly change and improve your financial future.
We will discuss this and a lot more at our ICG Quarterly 1-Day Expo on Saturday 5/19/2018 near the San Francisco Airport. I will be teaching and holding extensive Q & A sessions. We will have expert speakers on Asset Protection, 1031 Exchanges, and Financial Planning overall. There will be lenders present, 5-star networking, and presentations from market teams from the most relevant markets in the U.S. You can attend free, with a guest by emailing us at firstname.lastname@example.org, and mentioning this blog. Looking forward to seeing you!
#real estate, #real estate investing, #interest rates, #single-family homes, #rentals, #retirement, #college costs, #wealth
A view of new residential buildings under construction in the Hudson Yards development, August 16, 2016, in New York City. (Photo by Drew Angerer/Getty Images)
Perhaps nothing thrills mayors and urban boosters like the notion of endless towers rising above their city centers. And to be sure, new high-rise residential construction has been among the hottest areas for real estate investors, particularly those from abroad, with high-end products accounting for 8o% of all new construction.
Yet this is not an entirely high-end country, and these products, particularly the luxury high-rises in cities, largely depend on a small segment of the population that can afford such digs.
No surprise, then, that we see reports of declining prices in areas as attractive as New York, Miami, and San Francisco, where a weakening tech market is beginning to erode prices, much as occurred in the 2000 tech bust, John Burns Real Estate Consulting notes. There have been big jumps in the number of expired and withdrawn condo listings, particularly at the high end; last year, San Francisco saw a 128% spike in the number of withdrawn or expired listings for condos over $1.5 million.
Several factors suggest the high-rise residential boom is over, including a growing recognition that these structures do little to relieve the housing affordability crisis facing middle-class residents, the inevitable aging of millennials and their shift to suburbs and less expensive cities, and the impending withdrawal of some major foreign investors who have come to dominate the market in many cities.
Cost And Affordability
One common refrain among housing advocates and politicians is that high-rise construction is a solution to the problem of housing affordability. The causes of the problem, however, are principally prohibitions on urban fringe development of starter homes. Critics also note that high-rises in urban neighborhoods often replace older buildings, which are generally more affordable.
One big problem: High-density housing is far more expensive to build. Gerard Mildner, the academic director of the Center for Real Estate at Portland State University, notes that development of a building of more than five stories requires rents approximately two and a half times those from the development of garden apartments. Even higher construction costs are reported in the San Francisco Bay Area, where the cost of townhouse development per square foot can double that of detached houses (excluding land costs) and units in high-rise condominium buildings can cost up to seven and a half times as much.
Almost without exception, then, the most expensive areas are precisely those that have the most high-rise buildings: New York, San Francisco, Seattle and Miami. More to the point, these buildings don’t tend to be occupied by middle-class, much less working-class, families. And in many cases, these units are not people’s actual homes; in New York, as many as 60% of new luxury units are not primary residences, leaving many unoccupied at any given time.
Even worse, a high-density strategy tends to raise the price of surrounding real estate. As Tim Redmond, a veteran San Francisco journalist, points out, luxury apartments often tend to be built in areas with older, more affordable buildings. The notion that simply building more of an expensive product helps keep prices down elsewhere misses the distinction between markets; the high-rises in Washington, DC, are not the affordable units that the vast majority of city residents need.
Other cities favored by luxury developers – like Vancouver, Toronto, Seattle and San Francisco – have also seen deteriorating affordability and, in some cases, a mass exodus of middle- and working-class residents, particularly minorities. San Francisco’s black population, for example, is roughly half of what it was in 1970. In the nation’s whitest major city, Portland, African-Americans are being driven out of the urban core by high-density gentrification, partly supported by city funding. Similar phenomena can be seen in Seattle and Boston, where long-existing black communities are gradually disappearing.
The New Demography Works Against This Trend
It is common in retro-urbanist circles to maintain that more Americans, particularly younger ones, will opt to remain customers for ever-greater density, a preference that could sustain an ever-growing market for high-rises. Yet that notion may be past its sell-by date, with demographic evidence suggesting that most Americans, including younger ones, are looking less for an apartment in the sky than for a house with a little backyard.
Suburbs, consigned to the dustbin of history by many urban boosters, are back. Demographer Jed Kolko, analyzing the most recent Census Bureau numbers, suggests that population growth in most big cities now lags that of their suburbs, which have accounted for more than 80% of metropolitan growth since 2011. Even where the urban core renaissance has been most prominent, there are ominous signs. The population growth rate for Brooklyn and Manhattan fell nearly 90% from 2010-11 to 2015-16.
The real trend in migration is to sprawling, heavily suburbanized areas, particularly in the Sun Belt. To be sure, there are high-rises in most of these markets – quite a gusher of them in Austin, for instance – but the growth in all these regions is overwhelmingly suburban.
The most critical factor over time may be the aging of millennials. Among those under 35 who do buy homes, four-fifths choose single-family detached houses, a form found most often in suburbs. Surveys consistently find that most millennials see suburbs as the ideal place to live in the long run. According to a recent National Homebuilders Association report, more than 66%, including those living in cities, would actually prefer a house in the suburbs.
The largely anecdotal media accounts of millennial lifestyles conflict with reality, Kolko notes. Although younger Millennials have tended toward core cities more than previous generations, the website FiveThirtyEight notes that those ages 30-44 are actually moving to suburban locales more than in the past.
The China Syndrome
Given the limits of the domestic market, the luxury high-rise sector depends heavily on foreign investors. Already, harder times for some traditional investors – Russians and Brazilians, for example – have hurt the Miami market, long attractive to overseas buyers. There is now three years’ worth of inventory of luxury high-rises there, with areas such as Edgewater, Midtown and the A&E District suffering an incredibly high inventory of seven and a half years. Miami Beach is faring a bit better but is still a buyer’s market at a little over two years of inventory.
Still, the greatest threat to the luxury high-rise market may come from the Far East, the region of the world with the most surplus capital and, given the rapidly aging society, often the fewest profitable places to put it. Korea and Japan have lots of money sitting around looking for a home. Japan and its companies, according to World Bank data, are hoarding more than $2 trillion in unused liquid assets.
But as in all things East Asian, China stands apart. Last year, the country had a record of $725 billion in capital outflows, according to the Institute of International Finance. China is now the largest foreign investor in US real estate.
But now the Chinese government has placed strong controls on these investments, which could leave some places vulnerable. In Downtown Los Angeles, according to local brokers, many of the new high-rise towers are marketed primarily in China. (LA claims to have the second-highest number of cranes, behind only Seattle.)
These expensive units are far out of reach for the younger people who tend to inhabit the neighborhood, instead of serving as what one executive called “vertical safe deposit boxes” for people trying to get their money out of China. If the new crackdown on such investments is strongly enforced, this could leave a lot of expensive units without buyers. Prices have already softened, and with several new luxury buildings coming up, Downtown is likely to experience a glut.
Even in Manhattan, another market long dependent on foreign investment, projects are now stalled, including some once-hot properties in Midtown that are delaying their sales launches. Overall sales of condos over $4 million dropped 18% last year from the high levels of the previous three years. The ultra-premium market for condos over $10 million saw a 5% sales decrease in 2016.
The current slowdown, and perhaps longer-term stabilization, could lead to lower rates of migration out of the expensive cores. Yet this trend is not likely to reverse the movement of younger people to less dense areas. Luxury high-rise units were not built for families, and they are often located in areas with poor schools and limited open space. They may simply become high-priced rentals, attractive no doubt to childless professionals but not to middle- and working-class families.
In the end, the real need is not for more luxury towers. What is needed, particularly in America’s cities, from the urban core to the urban fringe, is the kind of housing middle- and working-class families can afford.
It is not surprising with lower unemployment, still-low interest rates and FHA loans with 3.5% down payments available to home buyers (*buy to OWN, not as an investment). What effect does this have on us as investors? Seemingly it will drain the rental pool.
In reality, however, there is a great shortage of good single family homes since housing starts have not yet made up for the gap in new construction created during the recession. Thus renters are still likely to be quite plentiful. Prices, however, are likely to get a boost from this increased buying activity. The home buyers using the 3.5%-down FHA loan are less price-sensitive and willing to pay more for a home they like (after all the difference for them is only 3.5% of the extra amount which is negligible).
Another benefit is since the younger generation of buyers seeks less expensive homes, the builders are creating more and more of those see in the WSJ (article below). Since these homes have exactly the kind of size and price we seek as investors, it will widen the inventory pool from which to buy, as investors are sometimes faced with tight selections.
Millennials are buying homes, steering builders toward lower price points
Home buyer Darin Fredericks and his wife Summer Fredericks in the kitchen of their new home in Ontario, Calif., last November. PHOTO: PATRICK T. FALLON FOR THE WALL STREET JOURNAL
Updated May 11, 2017 8:09 p.m. ET
First-time buyers are rushing to buy homes after a decade on the sidelines, promising to kick a housing market already flush with luxury sales into a higher gear.
Tracking home sales to a particular age group is hard, but a series of data points form a mosaic of a generation of young people ready to buy: The number of new-owner households was double the number of new renter households in the first quarter of this year, the share of first-time buyers is creeping back toward the historical average, and mortgages for first-timers are on the rise.
“They’re crawling out of their parents’ basements, they’re forming households and they’re looking to buy,” said Doug Bauer, chief executive of home builder Tri Pointe Group which operates in eight states.
In a shift, new households are overwhelmingly choosing to buy rather than rent. Some 854,000 new-owner households were formed during the first three months of the year, more than double the 365,000 new-renter households formed during the period, according to Census Bureau data. It was the first time in a decade there were more new buyers than renters, according to an analysis by home-tracker Trulia.
Homebuilders are beginning to shift their focus away from luxury homes and toward homes at lower price points to cater to this burgeoning millennial clientele. Demographers generally define millennials as people born between roughly 1980 and 2000.
In the first quarter of this year, 31% of the speculative homes built by major builders were smaller than 2,250 square feet, indicating they were in the starter-home range, according to housing-research firm Zelman & Associates. That is up from 27% a year ago and 24% in the first quarter of 2015.
“There’s an increasing confidence level in that part of the market,” said Gregg Nelson, co-founder of California home builder Trumark Cos. “The recovery is finally starting to take hold in a broader way.”
The shift reflects a reversal of a pattern that has driven the five-year housing-market expansion.
Up until now, the luxury market has soared, while the more affordable end of the market has struggled. Tough lending standards, slow wage growth, growing student-debt obligations and a newfound fear of homeownership have combined to crimp demand among millennials in particular.
Now, the return of first-time buyers is allaying fears that millennials might eschew homeownership permanently. But it also provides an infusion of new demand while housing supply is tight and home price growth is significantly outstripping wage gains.
Home prices in February increased by 5.8% over the same month a year earlier, according to the most recent S&P CoreLogic Case-Shiller U.S. National Home Price Index.
The return of first-time buyers is accelerating. In all, they have accounted for 42% of buyers this year, up from 38% in 2015 and 31% at the lowest point during the recent housing cycle in 2011, according to Fannie Mae, which defines first-time buyers as anyone who hasn’t owned a home in the past three years.
While economists and builders said lending standards have started to ease, getting a mortgage remains challenging for young buyers with shorter credit histories and, in many cases, student debt. Mortgage rates are also expected to rise further this year, posing an added challenge. Rates for a 30-year fixed-rate mortgage has risen to 4.05%, up from about 3.5% in November, according to Freddie Mac.
In Orange County, Calif., Trumark’s Mr. Nelson said he has been selling entry-level homes at nearly double the rate of his higher-end ones. He is even gaining confidence to build homes in more far-flung locations. The company is about to begin construction on a 114-home project in the Inland Empire east of Los Angeles and another development in Manteca, Calif., about 80 miles east of San Francisco. Both areas were hard-hit during the housing crash and were among the slowest to recover.
Builders largely avoided the exurbs after the bubble burst in 2006. But because the land there is cheaper, they can build lower-end homes more profitably.
“Most builders really preferred to stick straight down the fairway, right at the corner of Main and Main. They were afraid to go back into the rough where they built a lot of homes in the prior cycle,” said Alan Ratner, a senior home-building analyst at Zelman.
Outside Las Vegas, Tri Pointe has introduced a new home design that is specifically targeted to millennial buyers, featuring indoor-outdoor patios and deck spaces, as well as a separate downstairs bedroom-and-bathroom suite that could be rented out to a housemate. Mr. Bauer said the homes, geared toward first-time buyers, have been selling more rapidly than pricier homes.
Joey Liu, a 28-year-old technology worker, purchased his first home in San Jose, Calif., earlier this year. He said it is more expensive than renting but that he is getting to the stage in life where it was time to buy.
“A lot of friends of mine bought a home so I started thinking maybe it was time to buy a home and stop paying rent,” said Mr. Liu, who settled on a three-bedroom townhouse for $690,000. He plans to rent out a room to help with the expenses.
He had three housewarming parties to celebrate his newfound status. “This is my first house, so it definitely feels different,” he said.
Builders say their return to the starter-home market shouldn’t invite comparisons to the fevered construction of the mid-2000s.
“One of the misconceptions is that here we go again, this is another 2005, 2006 where all these builders are going to build hundreds of thousands of homes. We’re not going crazy,” said Brent Anderson, vice president of investor relations at Scottsdale, Ariz.-based Meritage Homes Mr. Anderson said that last year the company was building four to five speculative homes per community and is now up to 6.4 on average.
Building executives said one challenge is that many people are buying first homes later in life, meaning they have higher incomes and greater expectations molded by years of living in luxury downtown rentals. Such buyers also appear wary of driving farther out to get more space.
Sheryl Palmer, president, and chief executive of Scottsdale-Ariz.-based Taylor Morrison Home , said to cater to this demographic the company is building more three-story townhouses or single-family homes on narrow lots. She said about one-third of the company’s buyers this year are millennials, up from 22% last year.
Even Toll Brothers which typically builds homes for the top end of the market, is venturing into lower price points. In Houston, the company is building homes starting in the mid-$300,000s range, while a typical Toll home in the area costs around $850,000.
Appeared in the May. 12, 2017, print edition as ‘Generation of Renters Now Buying.’