Greg Cooper J.D.
April 12, 2023
As a digital multifamily brokerage firm, Offerd has been keeping a keen eye on the evolving real estate market. Millennials are currently grappling with high home prices and rising interest rates, which could force them to remain renters for longer periods. This, in turn, may create a demand for apartments that could overwhelm supply, according to a new report from real estate investment firm Marcus & Millichap.
The 28-34 age group, who typically transition to homeownership at this stage, is likely to remain renters due to the challenging conditions in the single-family market. Despite the pace of home buying in early 2023 slowing to its lowest rate since the pandemic, price relief remains elusive. Low available listings and homeowners with low-rate mortgages retaining their homes are contributing factors.
These circumstances may disrupt the natural flow of mid-30-year-olds transitioning from renting to homeownership, further squeezing the supply of available apartments for younger renters. The report highlights the crucial need for new apartment construction, in line with the record number of rental units expected to be completed in 2023. However, developers will need to maintain this pace to meet long-term demand.
Some construction indicators suggest a medium-term development slowdown. In 2023, project permits for single and multifamily housing dropped more than 25% YoY. Estimates indicate that the US could face a housing shortage of millions over the next decade. With numerous projects underway, this slowdown could become apparent beyond 2024.
Millennials' apartment preferences are also likely to shift. Those with growing families may lean towards suburban options in areas with desirable school districts. In contrast, those who delay marriage and families could be drawn to well-located luxury apartments.
Ultimately, these trends may alter the American concept of "home" as millennials adapt to the changing real estate landscape. Understanding and anticipating these changes will be crucial for developers and the multifamily industry as a whole.