Homeownership remains a pillar of American culture and, rightly or wrongly, a symbol of success. As such, there are some tidbits that real estate investors can glean from today’s residential real estate environment. This short article explores some nationwide trends and points of note regarding homeownership, with an emphasis on the Philadelphia, PA market. As regards home buyers, the focus is on millennials and to what extent and fashion they are driving demand for new home construction.
Investors need to be aware of these three facts:
- There has been a recent plateau of homeownership rate at 64.2 percent as of the most recent census publication. This metric is in line with historical averages dating to the 1960s.
- Though the real estate market is not perfectly responsive to consumer demand, There are no large-scale inefficiencies or outsized metrics that could act as a wild card for real estate prices in the near future.
- Also, real estate investors should note the focus on high-priced home construction in recent years, with proportionately less supply of affordable and modest homes for people with less resources available for home purchases.
In the Philadelphia, PA metro area, apartment construction will remain robust, indicating healthy anticipated rental property demand and a healthy profit margin. This means that rent is unlikely to go down in the near future. Therefore, opportunities for buying homes will be driven by potential buyers who currently rent and have enough disposable income to buy homes without much financial stress. It’s worth mentioning that Philadelphia housing is currently priced a bit low. This means there could be above-average incentive for current renters in the Philadelphia area to make the leap into buying.
There is persistent and growing demand from millennials who want to be homeowners. However, as has been documented elsewhere, these prospective buyers are hampered by high rental prices and inordinately high student debt. Though it may be countered that employment seems to be robust, there is a distinction between employment and incomes when it comes to resources available for home buyers. Part-time jobs, temp jobs, and jobs that simply don’t pay proportionately to the cost and time invested in an education all boost the “employment” statistic. Employment takes into account those that are able and willing to work, but not whether that work is proportionately rewarding to their investment to get the job. This is the stereotype of a barista with an MBA come to life. Income has stalled in comparison, and it is income just as much as employment that makes or breaks the ability to buy a home.
Conclusion and Recommendations
There is a focus on building more expensive homes with little attention paid to homes on the more affordable end. Additionally, millennials have expressed interest in buying homes, with continuing pent-up demand squeezed by high rents and debt obligations. Therefore, an investment in affordable housing, which is currently under-served and neglected by developers, could be lucrative if it offers a pathway to ownership that takes into account less-than-usual ability to meet down payment requirements and other initial due to drain of high rent and debt without a proportionate income boost. Though these recommendations are made with good intent and concrete research, anyone interested in investing should first speak to a real estate professional before making any financial commitments.