Millennials, Fearing a Housing Market Crash, Continue to Rent

By The ArborCrowd Team
Oct 6, 2022

The millennial generation delayed home buying due to record high student loan debt, elevated home prices, and a later start to household formation than previous generations.

Despite the generational cohort (which comprises of people between ages 26 and 41) beginning to form families, fearing a crash or significant correction in the for-sale housing market, many are continuing to rent rather than purchase homes. The millennial homeownership rate is just 48.6%, more than 20 percentage points below Generation X (ages 42 to 57) and approximately 30 percentage points under Baby Boomers (ages 58 to 76), according to Apartment List’s annual report on millennial homeownership.

Millennials are wary of buying in the face of a potential recession akin to the Great Financial Crisis in 2007-2009, when the housing bubble burst and home prices declined significantly.

The housing market has never really been kind to millennials. After student loans limited many from purchasing their first homes, home prices skyrocketed to record highs during the COVID-19 pandemic due to fierce competition as people desired more space and privacy, and mortgage rates were near historical lows. Since then, inflation spiked to a four-decade high of 9.1% in June 2022, drastically affecting the U.S. economy, and the Federal Reserve aggressively raised interest rates by an unprecedented 300 basis points over the course of just seven months. (The inflation rate has scaled back to 8.3% as of August.)

Due to the rate hikes, average 30-year mortgage rates have doubled to 7% since the beginning of the year, cooling down the housing market. Home prices are expected to fall but are currently still hovering near historical highs.

Many experts are predicting a recession on the horizon, and by the commonly accepted definition of a recession — at least two consecutive quarters of negative gross domestic product growth — some believe the economy is already in a recession. The stock market has fallen most of the year with the S&P 500 index down more than 20% year-to-date as of September, reflecting poor investor sentiment.

Millennials may not be as enthusiastic to purchase homes given this turbulent economic environment, but they continue to desire to live in homes, which has translated into increased demand for single-family rentals (SFR) and build-to-rent (BTR) communities.

SFRs and BTRs provide all of the same amenities as owned homes, such as more privacy, space, and higher quality neighborhoods, with the added benefits of rentals: flexible lease terms, more affordable prices, and professional management.

While SFR rent growth has scaled back some from its recent peak, rents still increased 9.5% year-over-year in August, according to Yardi Matrix’s national multifamily report. Additionally, SFR occupancy is at 94.9% according to Arbor Realty Trust’s Q2 2022 SFR trends report. Institutional investors have taken notice of the high demand for SFR and BTR properties and committed $60 billion to the space in the past year, according to a Yardi Matrix report in July.

The multifamily sector is known for its increased resiliency in turbulent economic times as people always need a place to live. As a rapidly growing asset class and a subsector of the multifamily space, with help from millennials, SFR and BTR communities have the potential to outperform other investment types during the current financial turmoil.