By Katherine Tarbox, Senior Editor, REALTOR® Magazine
In 1993, the term “Generation Y” first appeared in Ad Age, to describe the age group who was about to embark on their teen years. While generations usually don’t have strict years to confine a group, most put the start of Generation Y — also known as the Millennial Generation, Generation Next, and the Echo Boomers — at the year of 1982 and the end at 2000. This year the first Millennials will begin to turn 30, a sign that this generation is growing up. It’s also a good sign for the housing market.
The Millennials are primarily the offspring of the Baby Boomers (those born from 1946 to 1964) and older Gen Xers. During the ‘50s and ‘60s, the average births per year in the U.S. went from 2.8 to 3.4 million per year and reached 4 million in 1964. While birthing rates dipped in the late ‘60s and ‘70s, in 1982 they began to spike up near that 4 million mark (hence, the nickname “Echo Boomers”), which again created a boom the in population. And this growing population is ready to enter the housing market.
There are some things working against this generation, though. They remain the most underemployed age bracket, with some economists putting their employment-to-population ratio at 45 percent, the lowest it’s been in 60 years. It’s hard to peg the employment rate for this group as many have been forced to take part-time jobs when they are qualified for higher work.
In addition, a study released by the Pew Research Center last month shows that Millennials are waiting a while to take those wedding vows: Just 20 percent of those aged 18 to 29 are married. That’s a crucial driver of home ownership: According to an August 2011 study by the University of Chicago study conducted by Jonas D. M. Fisher and Martin Gervais, single people are more likely to rent.
The positive news: With low interest rates and low prices, this generation is eager to buy, according to a study conducted by the University of Michigan’s Survey of Consumer Attitudes, which polled 6,000 households. First-time buyers are critical to housing, as they allow other sellers to move to the upper ranges of the market. The study also said that the recession has done little to affect Americans’ overall attitude toward buying a home.
Of course, many Millennials are looking to rent. As NAR Chief Economist Lawrence Yun points out in his November 2011 column, a stronger rental market will lead to a stronger housing market. As rents increase, more will consider the cost of owning vs. renting, and may tip some to buying. Also as investors enter the market to buy rental units, they are helping to drive prices up, such as in the Miami market, which finally saw prices rise last year. Yun estimates that Miami could see 10 to 12 percent appreciation in 2012, and other markets could follow.
Eventually, though, members of this generation will settle down, and when they do, they’ll need housing. And if the economy continues to improve, 2012 might be the year they start to do just that.