21 Jun Millennials Are In Real Estate: Why Now?
Written by Chris Cobb, Associate
Is Generation Me Trending Toward Generation RE?
The millennial generation which has long been criticized and categorized by their need for instant gratification is taking notice of tangible assets with potential long-term value. Fueled by a healthy skepticism of the stock market and bearing witness to the great recession, millennials have set their sights on real estate. There is no doubt that the past decade has been turbulent for the rising millennial generation. But now that the market has stabilized, more attention can be dedicated to investing in the future. By future, I do not mean the next plate of food which can be posted on Instagram after surviving the gauntlet of photo filters, but 10, 15, and 20 years down the road.
How many millennials consider real estate a viable candidate for investing their wealth? Recently, RealtyShares joined forces with Harris Interactive and created the Real Estate Investing Report. This report aimed to survey Americans of all demographics on their investment preferences. Per the survey results, 55% of all millennials are interested in investing in real estate. This was the highest percentage of all demographics questioned. Research from Fannie Mae supports these findings, reporting that 85% of millennials think real estate is a good investment. This is quite significant when you consider that an entire demographic with diverse backgrounds across the United States and varying levels of experience with real estate reaches a number like 85%. Essentially, a millennial who grows up in an apartment building in Queens, NY potentially finds comfort in real estate as an investment the same as a millennial who grew up on acres in rural Illinois.
How Millenials Feel About the Stock Market
How about the stock market? How do millennials view that? In 2007, approximately two-thirds of all Americans put their faith (money) in the stock market. However, a decade later, that number has fallen to roughly one-half. What could be the cause for such a reaction? One factor may be that the millennials witnessed the market crash and struggled to find jobs upon graduating college with sizable student loans. This lack of confidence in the stock market is not misguided.
In the sixteen-year period from 2000 to 2016, the S&P 500 yielded just over 5% annual total return compared with real estate’s near 11% annual total return.
The numbers don’t lie; Real estate was a more efficacious long-term gain route. If high-risk high reward is your game, then maybe the stock market is for you. Personally, I choose to follow the long-term law of averages. A very wise friend of mine always says that the lottery is for the “statistically challenged.” I tend to agree since your chances of winning a lottery such as the Powerball are an approximate 1 in 176 million. Disturbing when you consider the fact that NOAA sets the odds of an American getting struck by lightning once in an 80-year life is 1 in 13,000. Still not convinced, try flipping a quarter twenty-five times in a row and having it land on heads (or tails). If you succeed, your odds still are worse playing the Powerball by a factor of 10.
Why Real Estate is so Attractive for Millenials
OK, why should we care that millennials have a newfound interest in real estate? For one, millennials are now the most populous group of Americans. Per the Pew Research Center, last year millennials became the most populous American generation reaching 75.4 million and surpassing the baby boomers of 74.9 million. Emerging as the largest generation warrants a closer look at the motivations of decision making. Whether interest is fleeting or long-term, the most populous group can sway financial markets significantly.
Not only do the millennials comprise one-quarter of the population of Americans, their net worth is beginning to build. With the wake of some college debt and perhaps a couple job changes in the rear-view, the financial keel has begun to stabilize for millennials which prod the question: now what to do with this accumulated wealth? It can be especially unsettling if wealth generation is occurring for the first time in your life. If at high speeds, a pitfall is the tendency to spend it on extravagant material items.
What Are They Spending Their Money On?
Let’s be honest, on some level, we all appeal the lure of retail therapy, expensive meals, or bottle service at swanky clubs. And much like quick drying concrete, the more we indulge these desires the more difficult it will be to disconnect from them. As a member of the millennials (In fact, I am typing this article while plugged into my latest Spotify playlist so I can feel like a real millennial) and former resident of New York City, I was both privy and prey to the alluring draw of new, interesting, provocative, and apparently delicious treats. It’s no secret that New York City can become a hedonistic paradise rather quickly. But it also lends a special insight into the ever-changing, high-speed nature that real estate can become. Certain businesses may come and go but the land and, in most case, the building will remain for a longer period.
Personally, I am not exonerated from any of the aforementioned temptations. Even today I debate the idea of visiting a gourmet burger joint. However, I must admit that in my new role at Beck Partners Commercial Real Estate, I have seen the light; Real estate has great potential as a long-term tangible investment. Is this interest in real estate fleeting? Will it burn out quicker than a viral video made famous by social media outlets? Only time will tell but I do not plan on taking it out of the cross-hairs anytime soon.
So, take heed fellow millennials! We can be the enlightened trail-blazers on the forefront of progress. I will leave you a familiar closing thought: as you pass by a storefront and consider purchasing an array of artisanal jams or avocado slathered toast, consider investing that capital into the actual location which purveys such lavish items.