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Today’s Teenagers Will Rock Real Estate

Sea changes are in store for residential real estate ten years from now.  Millions of new households will lift rental and starter home markets, half of the new families will be minorities and their ability to access mortgage finance will determine whether they own or rent.

Those are some of the headlines from the Harvard’s Joint Center for Housing Studies’ 2014 State of the Nation’s Housing Report.  The report paints a bright but challenging future for homeownership.

Simple demographics describe how new household will change.  Assuming current headship rates hold, the number of households in their 30s should increase by 2.7 million. Many of tomorrow’s younger households will be minorities. By 2025, minorities will make up 36 percent of all US households and 46 percent of those aged 25–34, thus accounting for nearly half of the typical first-time homebuyer market, the report said.

Meanwhile, the aging of the baby-boom generation over the next decade will lift the number of households aged 65 and over by some 10.7 million. Many of these households will choose to make improvements and modifications to their current homes so that they can age in place, while others will seek out new housing options geared toward seniors.

Since minority households tend to have lower incomes and wealth than white households, their demand for owner-occupied housing will depend in large measure on the availability of mortgage financing that accommodates their limited resources.

“If mortgage markets cannot accommodate the limited financial resources of this new generation of households, there is a real possibility that fewer Americans will be able to enjoy the benefits of homeownership in the future,” said the report.

“That means unless the industry is content to be a boutique player with a hugely smaller pool of potential borrowers, it had better emulate the Fed and ease on down the road,” wrote Mark Fogarty, editor of National Mortgage News, commenting on the report.

Aside from the critical issue of credit, the report describes a positive environment for homeownership.  “The US homeownership rate fell again last year, marking almost a decade of declines. While there are few signs of an immediate turnaround, the strengthening economy will eventually lift household incomes—a key driver of housing demand. And despite recent increases, house prices and interest rates still favor the homebuyer.”

While access to financing will determine the future of homeownership in the years to come, rentals are booming.  There have been one million new renters annually between the 2005 peak in homeownership and 2013—double the average pace in any decade since the 1960s. On the strength of this demand, vacancy rates continued to fall and rents continued to rise nationally as well as in many metropolitan areas across the country. According to MPF Research, rents for professionally managed apartments climbed 3 percent in 2013. Meanwhile, increases in the 20 most rapidly appreciating rental markets averaged 6 percent, up from 5 percent.

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