Multifamily Midwest

Millennials are driving up home sales, but opting for the suburbs

Millennials are driving up home sales, but opting for the suburbs,ph1

The oldest millennials are now 37—the prime age for root-setting. As this generation starts to establish families, a wave of potential new buyers are moving into the market. In fact, millennials led home purchase activity for the fifth consecutive year, comprising 36 percent of the buyers in 2017.

But according to a Marcus & Millicap research brief, the latest generation to hit adulthood isn’t defying the urges of those that came before as it, too, is choosing the suburbs over the urban core. One reason for this is housing affordability. Median home listings under $200,000 continue to shrink, down 59 percent since May 2012.

So even as corporations relocate to urban cores in droves to capture young talent, those workers may be shifting the opposite direction. Home prices in urban areas have appreciated faster than those in the suburbs, causing millennial buyers to eschew moving to the core.

The majority of U.S. households are already located in the suburbs and that number is set to rise as young adults living in downtown areas form families and choose larger housing options in more affordable areas. Over half of the homes sold to this generation last year were in the suburbs, a trend that is now three years running. Over the next five years, the young adult population in downtown cores is expected to fall by an average of 0.7 percent each year, compared with annual growth near 1.5 percent since 2000.

While millennials are a driving force behind home purchases, first-time buyer activity constituted just 33 percent of sales in April, well below the long-term average of 40 percent. Homeownership among young adults is also the lowest of all age segments, with slightly more than 35 percent of those under age 35 owning a home, down from approximately 43 percent before the recession.

The limited supply of entry-level housing, both new and existing, and the rising cost of debt will restrain millennial home purchases. Younger millennials are also just entering the workforce, and delays in other major milestones, such as marriage and having children, will contribute to a large share of these individuals choosing to rent over the next few years.