Demographic Shifts dominating the Real Estate Market due to the Millennial and Baby Boomers

Demographic Shifts dominating the Real Estate Market due to the Millennial and Baby Boomers

Name

Institutional Affiliations

Demographic Shifts dominating the Real Estate Market due to the Millennial and Baby Boomers

Introduction

Real estate is one of world’s oldest and significantly dynamic industries as it adjusts to the present needs of the consumers. Considering that the market is highly dependent on the needs of the clients, then it must be connected to any demographic shifts. In this regard, it is important to consider the effect of baby boomers and the millennial in the changes occurring in the real estate industry. Baby boomers, born between 1946 and 1964, and millennial, 1981-1997, are two of the largest cohorts in the economy that tend to affect the performance of each industry, including real estate (Fry, 2016). Considering that real estate market is greatly defined by the existing laws and regulations, the demographical changes in the population will be reviewed from a legal perspective. This essay will argue that legal policies targeting the baby boomers and millennial have significantly influenced the performance of the real estate industry.

Demographical Analysis and Industrial Trends

To better understand the demographic shifts in the population and their impact on the real estate market, it will be critical to understand the population and present situation in the market. A recent study by the Pew Research Center shows that there are around 75.4 million millennial aged around between 18 and 34 years (Fry, 2016). On the other hand, the baby boomer population was approximated to be around 74.9 million with the age gap of 51-69 (Fry, 2016). Generation X, those born after the boomers but before the millennial, had the least population and were projected to surpass the boomers in the next ten years. Considering that the legal age of owning land or property in the U.S. is 18, then it is prudent to argue that boomers and millennial should be the primary target for real estate merchants (Miroff, Seidelman, Swanstrom, & DeLuca, 2014). While a majority of the millennial population is waiting to own a house or property, a significant number of baby boomers already own property are reluctant on selling it as they expect to recover the value lost after the economic meltdown in the previous decade. Some of the legal issues that may affect the populations are considered in the subsequent sections.

Student Loan Burdens

  The American education system is highly leveraged in the sense that a significant percentage of students going through the system do so with the aid of academic loans. In itself, student loans is a legal matter and although it has undergone previous reviews to make the burden lighter for graduates, the law still affects the ability to own property. Presently at least 40 million graduates are burdened by student loans accounting for approximately 7.5 percent of the domestic product (Orton, 2017). The present laws surrounding the repayment of student loans has been found to have a hindering effect on the ability to buy a house. As reported by Orton on the results of a survey conducted by the National Association of Realtors, around 71 percent of the respondents pointed out that their loan debt was delaying their home ownership with more than half of the population expecting a prolonged delay – over five years. The millennial cohort is most affected by the student loans considering that their home ownership has declined by 10 percent from 44 percent during the boom (Orton, 2017). Student loans do not just affect the ability to acquire property but also the financial security and confidence required for investment in the sector.

Figure 1: Proportion of 25 year olds by accommodation

Source: http://www.rclco.com/advisory-student-debt

The impact of student loans can be reviewed in light of Figure 1 where the difference in home ownership among the millennial cohort can be seen to have reduced significantly in a decade. More people presently opt to live with their parents or share houses with roommates, which lowers the likelihood and intention to own or even rent a house. The situation is made even worse if the laws regulating mortgages are not favorable as explained in the following section.

Mortgage Laws

Mortgages provide a key way to finance property in the United States and, as a result, any regulatory changes that affect the ability of the millennial and boomers to acquire funding are likely to affect the entire industry as a whole. First, it is important to consider the current regulations involving the ability of individuals with education loan, which mainly includes the millennial, to acquire mortgage funding. Ideally, the recent adjustments made in mortgage laws do not favor people with education loans. The millennial and first-time house owners are the most affected by the regulations developed by the Federal Housing Administration. The student loan balances are factored into the debt-to-income ratios that mortgage companies use to judge if an individual has the capacity to make repayments of a loan (Harney, 2015). With a higher debt ratio, the applicant has a challenging time in acquiring approval for mortgage. Baby boomers have been seriously blamed for collapse of the real estate industry in the past particularly due to the mortgage laws that existed at the time. Many boomers acquired their houses at a time when accessing mortgage was not as challenging, which implies that a significantly large aging population is on debt. Presently, over 40 percent of boomers aged over 65 with mortgage payments to make are considered to be heavily burdened (Hall, 2014). In addition, the likelihood of defaulting is significantly high, which implies that the causes of the previous real estate melt down may come into play in the near future.

Public Employee Retirement Systems

The American retirement system has much to deal with the real estate market primarily on the grounds of property financing and mortgage repayment. Notably, funding of the employee retirement system is a legal matter that is greatly influenced by the policy of the government on the issue. The lack of adequate funding for the local and state systems is very likely to result in challenges in the sustenance of real estate services at all levels of governance. Reduction of retirement funding is most likely to affect individuals with significantly lower pay (National Association of Realtors, 2012). For those making mortgage repayments, a reduction of retirement unexpectedly will result in challenges in the completion of the debt, which has the potential to affect the entire industry if the cases are widespread. Nevertheless, the ability to retain ownership of a property is related to other associated laws such as tax breaks that give alternative choices to the homeowner. Another way that retirement financing can affect real estate entails the model of investment integrated. In many cases, representative bodies opt to make investments in real estate, which makes retirees shareholders in real estate. However, it is important to note that retirement financing does not affect the millennial group but rather has a greater effect on the baby boomers.

Immigration Laws

The millennial generation is among the most diverse in the history of the country because a significantly large proportion are immigrants who have permanent or temporary residence in the United States (Roberts, 2016). The higher the number of the millennial grows, the more the impact on the real estate market will be. In this regard, the demographic change that affect the market can be viewed as a consequence of the government’s immigration laws and property ownership by foreigners. Notably the millennia also express willingness to interact without necessarily considering their background or their racial differences. Accordingly, diversity regarding race, age and has also been witnessed in many parts of the country because of the influence of millennial generation. As such, this strength has positively influenced their level of success in the real estate industry. The high population and diverse millennia create a tremendous opportunity for landlord and house sellers while advanced and robust technological infrastructure further expands the real estate market (Dougherty, 2017). The reason is that millennia are flexible and digitalized group, with extensive capabilities of carrying out research and thus have vast knowledge on contemporary real estate issues.

Civil Freedom

The government’s policy on the freedoms of an individual can determine the tendency of the real estate market. Civil law has the potential to affect demographic patterns such as race, age, income, and gender, which always reflected in real estate and other businesses (Roberts, 2016). Ideally the movement of people will affect current property ownership particularly because the distribution of real estate is not even based on location and is mostly controlled by the state laws. Although federal laws do not play the direct role in real estate law, specific sections of the law forbid any form of discrimination in real estate acquisition. For instance, the federal law of 1968 and subsequent amendment of 1988, 42 U.S.C. § 3601-3631 of  Fair Housing Act, protects all individuals dealing with real estate transactions against discrimination based on religion, sex, color, race or nationality (Sprankling, 2012). In this regard, members of the population, irrespective of their age, can acquire property if they have the financial capacity. The laws can affect the ownership of property within the population spectrum on the grounds of freedom and willingness.

Conclusion

The millennial and baby boomers constitute the largest percentages of the population, which makes them the greatest influencers of the real estate market dynamics. From a legal perspective, different laws come into play with the population dynamics to determine the present and future conditions of the real estate industry, particularly in consideration of the two age groups. One of the primary legal requirements that apply in their primacy within the market is that property ownership is recognized at the age of 18. Laws concerned with student loans have been found to have a significant effect on the ability of the millennial and first-time home owners to acquire property. On the other hand, mortgage laws affect both groups considering that it is a primary way of financing property; millennial with current student loan arrears are most affected by changes in the law. Unlike mortgages, financing of the employee retirement schemes mainly influence the ability of the boomers to retain property, especially for those still services their mortgages. The essay has evaluated different grounds on which the population dynamics can influence the real estate market within the legal confines. However, it is likely that there are other demographic shift issues that affect the market from social, political, economic, and cultural standpoints.

References

Dougherty, C. (2017, January 23). Peak Millennial? Cities Can’t Assume a Continued Boost From the Young. Retrieved from https://www.nytimes.com/2017/01/23/upshot/peak-millennial-cities-cant-assume-a-continued-boost-from-the-young.html?_r=0

Fry, R. (2016). Millennials overtake Baby Boomers as America’s largest generation. Pew Research Center. Retrieved 18 May 2017, from http://www.pewresearch.org/fact-tank/2016/04/25/millennials-overtake-baby-boomers/

Hall, J. (2014). How Baby Boomers' Homes May Become Liabilities -- The Motley Fool. The Motley Fool. Retrieved 18 May 2017, from https://www.fool.com/retirement/general/2014/10/05/how-baby-boomers-homes-may-become-liabilities.aspx

Harney, K. (2015). New rules make it tougher for people with college loans to buy houses. Washington Post. Retrieved 18 May 2017, from https://www.washingtonpost.com/realestate/new-rules-make-it-tougher-for-people-with-college-loans-to-buy-houses/2015/09/15/a31a940a-5b0c-11e5-b38e-06883aacba64_story.html

Miroff, B., Seidelman, R., Swanstrom, T., & DeLuca, T. (2014). The democratic debate (1st ed.). Cengage Learning.

National Association of Realtors. (2012). Top 10 Issues Affecting the Real Estate Industry. www.nar.realtor. Retrieved 18 May 2017, from https://www.nar.realtor/articles/top-10-issues-affecting-the-real-estate-industry

Orton, K. (2017). Student loan debt is hurting the housing market, survey finds. Washington Post. Retrieved 18 May 2017, from https://www.washingtonpost.com/news/where-we-live/wp/2016/06/13/student-loan-debt-is-hurting-the-housing-market-survey-finds/

Roberts, J. (2016, November 24). Conflicting tasks of millennials put baby boomers to shame. Retrieved from https://www.ft.com/content/1d17abc2-ace1-11e6-ba7d-76378e4fef24

Sprankling, J. G. (2012). Understanding property law. New Providence, NJ: LexisNexis.