To Buy or Not to Buy, That Is the Question (for Millennials)
In the last month, the South Florida Business Journal reported on the announcement of at least three new apartment projects:
- June 18: Developers plan 300 apartments in Midtown Miami
- June 19: Lennar plans 229 apartments in Boca Raton after $7.5M purchase
- June 23: Broward commissioners to vote on 400-apartment project
Data from the real estate analytics firm REIS indicate that 2,425 new apartment units were completed in Miami in 2013. Not only is this noteworthy because this represents the most units delivered per year since 1991 but also because nearly all of the units were absorbed. More than 600 units have been delivered so far in 2014, and close to 3,000 units remain under construction. Despite this comeback in Miami apartment construction, the apartment vacancy rate ended the first quarter at 3.8 percent and is expected to remain at this low level for an extended period. Is apartment construction heating up in South Florida as a result of a change in fundamental beliefs of the rising generation?
According to an article featured in the latest issue of the Atlanta Fed's EconSouth, the generation known as the millennials is showing signs of veering from established patterns, particularly when it comes to milestones like moving out of the parents' house, getting married, and buying a home. Many experts, including Atlanta Fed economist Tim Dunne (who has written extensively on the topic, including this article), acknowledge that economic conditions are partly to blame for these delayed decisions.
But are these decisions only being delayed, or have preferences changed? Reports from some Atlanta Fed business contacts suggest that attitudes and preferences may in fact be changing. Some business contacts report that, unlike previous generations, millennial employees are often unwilling to commit long term to one organization, preferring instead nonmonetary perks such as flex time over higher pay, and they place great value on work-life balance. Moreover, real estate business contacts in South Florida have noted that millennials prefer the "experience" that often comes with high-end apartments, such as amenities including dining and shopping, rather than a traditional home in a suburban setting.
More than shifting preferences may be at work, though. According to Fannie Mae’s national housing survey, conducted in May 2014, potential first-time homebuyers are facing several challenges that inhibit their ability to purchase a home. Although the survey does confirm that the number of renters has increased on a national basis, and the number of homeowners has declined, since the financial crisis, the survey's findings indicate that potential homebuyers are not renting by choice but rather by necessity. Higher credit standards and increasing home prices have hindered potential homebuyers. The survey results suggest that younger renters aspire to own but feel pessimistic about their ability to get a mortgage, perceiving down payment and credit score requirements as obstacles. The survey also reported that young renters aspire to own for financial and lifestyle reasons, although a smaller share of respondents (versus last year) reported that their primary reason for renting is to prepare them for homeownership.
For the rental market, the question remains whether that segment's growth is a permanent shift by millennials or merely a bridge until this generation is better prepared to become homeowners.
By Marycela Diaz-Unzalu, a Regional Economic Information Network analyst in the Atlanta Fed's Miami Branch
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