How Changing Demographics Impact the Real Estate Market

Recent Shifts

Over the past decade, several demographic changes have affected how and where Americans choose to live. Let’s evaluate a few key trends:

1. Millennials and Housing

American household structures are changing. Younger generations are choosing to get married and start families later in life. In 2020, the median age for a man’s first marriage was above 30 for the first time in history, according to Census estimates, while the median age of a first-time bride was above 28, also for the first time. Subsequently, millennials are starting their families later and delaying the purchase of their first home. A recent NAR survey showed that the typical first-time homebuyer was 36 years old — up from 33 the previous year.

Not only is the timeline shifting for first-time buyers, but location preferences are, as well. When it comes to choosing where to live, millennials’ top priorities include affordability, a healthy job market, low crime rates, nearby schools and universities, and quality of life. For years, many large metropolitan areas met these expectations; however, as they’ve grown, they’ve struggled to maintain the infrastructure that once attracted residents and have become overpriced and overcrowded. Because of this, there has been a steady shift in popularity toward secondary and tertiary markets. Many people are no longer focused solely on the attraction of living in a large city and are instead looking towards suburbs that offer more space and a better lifestyle at a more affordable price.

2. New Household Dynamics

Multigenerational family households are becoming more popular than ever before. Although the “traditional” family dynamic is shrinking, the size of the average U.S. household is trending upwards, and this trend has only accelerated since the COVID-19 pandemic. The most recent data shows the rise of young adults moving back home: From 2000 to 2017, the number of unmarried young adults living with their parents almost doubled to a record-high 22%, likely due to the COVID-19 pandemic, a rise in the cost of living and student loan debt. For this age group, buying a single-family starter home in today’s economic environment has become nearly impossible, and has created a massive shift in household dynamics across the country.

3. An Aging Population

Baby Boomers – born between 1946 and 1964 – make up a substantial portion of the population and are now entering retirement age. As the largest generation of wealth holders and real estate owners, whether or not they choose to age in place will have a significant impact on the residential real estate market in the U.S. Unlike previous generations that have looked to downsize to smaller homes, condos, or retirement communities, many boomers are choosing to remain in their current homes for two main reasons: 1) They are living longer and healthier lives than their predecessors, and 2) Real estate is simply not as affordable as it was when they purchased their current homes.

Why Demographic Trends Matter

The three demographic shifts discussed above present multiple challenges for commercial developers but also offer lucrative opportunities for those who can get ahead of the curve. After all, changes in how and where the population lives greatly influences the need for commercial real estate. Savvy real estate professionals have already started to capitalize on these changes and are investing in properties that cater to a more modern lifestyle or in areas that are poised to benefit from these demographic trends.

Our Investment Approach

At Excelsior Capital, assessing demographic changes and market performance is one of the very first steps in evaluating a prospective investment opportunity. This insight gives us a good sense of whether or not a deal is worth pursuing.

Here are a few key elements we consider:

• Markets that provide residents with access to both affordable housing and quality public education while also offering a high quality of life
• Diversified economies that maintain a presence in government, university, healthcare, and professional services and do not rely on one type of industry to support the metro area
• Locations with price appreciation, millennial populations, population growth, and a strong job market

Once we’ve analyzed the criteria above, we can move forward in our acquisition process and conduct thorough due diligence on the specific asset. For more information on our investment approach, please feel free to reach out to our team.

Sources:

https://www.bankrate.com/mortgages/first-time-homebuyer-guide/

https://www.pewresearch.org/short-reads/2019/10/01/the-number-of-people-in-the-average-u-s-household-is-going-up-for-the-first-time-in-over-160-years/