What Investors And Multifamily Leaders Need To Know


Carlos Vaz is Founder & CEO of CONTI Capital, a real estate investment company, providing capital solutions for multifamily real estate.

Monitoring demographic shifts is a critical part of any business practice, and as such, my company, CONTI Capital, has kept close tabs on the remarkable impact the millennial generation has had on housing demand.

The U.S. now finds itself with a huge swell of housing demand and not enough supply, and part of this demand is due to the millennial generation. As they begin to form families and move up in their careers, this large slice of the population is facing high housing prices and rising interest rates. While these factors may be pressing downward on home sales, it is my view that the need for housing still holds strong.

Who are millennials?

As of April 2020, there were more than 72 million millennials in the U.S., making the group larger than Gen-X and the Baby Boomer generation.

One cannot assume that this generation will affect business in the same way as past generations. Millennials often differ from their elders in their approach to major life milestones. For example, they tend to get married later in life than previous generations. In 2014, 28% of millennials were married when they were between ages 18 and 33, compared with 38% of Gen Xers and 49% of Baby Boomers when they were in that age range. Similarly, millennials tend to have children later in life.

The number of millennials is enough to fuel a large part of housing demand, according to my company’s analysis. New households increased by 1.6 million between the first quarter of 2020 and the first quarter of 2022, according to Harvard University’s Joint Center for Housing Studies. Many of those households are millennials who delayed living on their own in their 20s and early 30s.

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Many millennials are looking to spread out into the suburbs, wanting the increased space that comes with a detached home and access to quality schools. However, the obstacles for hopeful first-time homebuyers are high, both financially and from a supply perspective.

How are market forces influencing this demographic?

Home prices in the U.S. increased by 18.3% between May 2021 and May 2022, according to the Federal Housing Finance Agency’s House Price Index, caused by a lack of supply and fierce competition. Home buyers must also contend with rising mortgage rates, which is the result of the Fed’s attempt to cool inflation by raising interest rates. A 30-year mortgage interest rate is, at the time of writing, 5.55%, according to Freddie Mac. Though mortgage rates are not high from an historic perspective, the rate of increase is unprecedented.

The impact on the average millennial renter is stark. A typical down payment of 7% amounts to $27,400 on a median-priced home as of April 2022, according to the Harvard University Joint Center for Housing Studies. This requirement on its own eliminates 92% of renters, who have just $1,500 saved on average. Even if the down payment were reduced to 3.5%, the monthly mortgage payment on a median-priced home would only come down to $2,020. With these price factors in play, the minimum income needed to afford these payments has risen from $79,600 in April 2021 to $107,600 in April 2022—slicing 4 million renting households out of the market.

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Renting is the only option for many millennials.

Where does this leave millennials who need a place to live, and how can real estate investment companies react to this reality? Because of these affordability challenges, renting has become a much more feasible option (paywall). Millennials who had saved up to buy a home before the market became cost-prohibitive now have the option to either rent a high-end Class A apartment or a single-family home, which can provide them with the perks of living in the suburbs without the financial burden.

While some economists worried as housing prices began to climb that we could be seeing the start of a housing bubble, the pent-up demand from the millennial generation will lend a great deal of strength to certain housing markets across the country, according to Business Insider. I’ve long held that we are not in a real estate bubble, particularly not in the Sun Belt markets.

Real estate professionals need to realize the situation we face—there is still demand within this demographic, not only for multifamily units but for single-family rentals, which would likely appeal to millennials who are starting families and would like to spread out. Though SFRs have gotten a lot of attention for investors, I think we have yet to hit the ceiling on demand for these assets.

It’s important that developers listen to the needs of this group when planning for new properties. Millennials often expect to find a lot of information online when searching for an apartment, and they might be looking for coworking space if they don’t work from an office very often.

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Considering the huge housing demand in the years to come, supported by the millennial generation, I believe the multifamily market is still in a stable position, despite concerns about the economy and market performance.

I’d advise business leaders not to panic as we approach the coming year. Look past the headlines and find a reliable source of data and leading indicators in your field. What are the numbers really telling you about the future? Home in on your regional market to get a sharper picture on the coming months. Keep in mind; this is not 2008, and in my view, the demographics are stronger. It’s up to business leaders to allocate resources toward tracking the economic, social and financial metrics that will have an outsized impact on the success of their companies.

I believe that in times of economic turbulence, multifamily investment weathers the challenge well because people will always need a place to live. While rising mortgage rates and the low supply of stand-alone homes may be a barrier to millennials, these factors continue to increase the value of multifamily properties. Millennials remain a demographic to watch for real estate professionals, particularly as they form households.

The information provided here is not investment, tax or financial advice. You should consult with a licensed professional for advice concerning your specific situation.


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