Active allocation: A world of ideas
Our Ivy Live panelists discuss the evolving investment landscape, including the recent U.S.-China trade escalation, and ideas to help guide allocation decisions.
Many Millennials weren’t able to buy low when the housing bubble burst in 2008 because they were either too young or were burdened by student loan debt and a lack of job prospects. Now Millennials are active in the real estate market, accounting for 42% of home buyers.1 Because this large generation delayed purchasing their first home and are entering the market at the same time, many areas are experiencing a housing shortage. But don’t worry, this disruptive generation is shaking up homeownership the same way they’re changing everything from retail to technology.
While the housing market may be challenging, optimistic Millennials won’t necessarily whine about “missing out.” In fact, to the untrained eye, it may look like they don’t care about home buying. Check out the social media presence of the average Millennial, and you’re sure to see plenty of pics from their latest adventures. Millennials, more than previous generations, place a premium on experiences, including international travel. This desire is redefining what personal success looks like, meaning they might be more likely to save up for a dream trip than a down payment.2 This affects the kinds of homes that are affordable (or desirable) for this nomadic generation. But of course, even a small down payment necessitates some amount of savings!
Millennials are pulled in many directions financially. First and foremost, student loans are a major limiting factor in what most Millennials can afford to spend (or put away) each month. However, this doesn’t mean they aren’t paying attention to their finances. Millennials are using apps like Mint (which can help keep track of budgets and spending), Acorns (which rounds up credit or debit card purchase to the nearest dollar and invests the difference) and Stash (which offers micro-investing). It may seem like a little here and there, but even minimal saving adds up over time. Millennials, with the aid of the internet, seem to be big believers in that adage “a penny saved is a penny earned.”
Enterprising Millennials are also finding creative ways to make a down payment achievable, even with those pesky student loans. For example, companies like Loftium will provide users with up to $50,000 towards a down payment on a new home in exchange for the new home-owner listing a room on Airbnb for 12-36 months.3 Startups like Unison Home Ownership Investors also provide a helping hand towards getting over that down payment hurdle. This company will kick in money towards a down payment. Then, when the house is sold, Unison gets back whatever it put towards that down payment, plus 35%.4 These companies are operating under a developing trend called “shared-responsibility mortgages,”4 an idea that is sure to appeal to the collaborative Millennial.
When it comes to buying their first home, it’s no surprise Millennials are looking to technology to help them figure out this big decision, including finding the most affordable options. Companies like Zillow have answered the call, launching a new tool, called RealEstate.com, to help connect Millennials with realistically affordable homes. Prospective home buyers can now calculate their “All-In Monthly Price” for homes. This includes property taxes, homeowner’s insurance, principle and interest, making the entire process a little less daunting and a lot more transparent. RealEstate.com includes not just the traditional home buying tools (like photos, maps, square-footage filters, etc.) but also the all-in monthly cost tool. This makes it much easier for people to compare costs between their current rental situation and the cost of would-be home ownership.5
Millennials, as is often the case, seem to want the best of both worlds: a home they can afford and the flexibility to live the kind of life they find meaningful. So, what does this look like? For some, it means thinking smaller. “Tiny homes” or “micro-apartments” seem to attract Millennials for their ability to make big use of otherwise underutilized urban spaces. They’re smaller, more efficient size translates into a much smaller carbon footprint. This allows a Millennial homebuyer to combine two passions: a flexible, urban lifestyle and environmental stewardship. Plus, the smaller price tag translates into greater financial liquidity and freedom.6
In short, Millennials are redefining success and creating new financial opportunities for themselves. While it’s clear the housing industry is not what it used to be, it’s fair to say that we may be witnessing its evolution.
1Zillow Group. (2016, Oct. 18). The Zillow Group Report on Consumer Housing Trends.
2Morgan, B. (2015, June 1). NOwnership, No Problem: Why Millennials Value Experiences Over Owning Things. Retrieved from Forbes.
3Price, E. (2017, Sep. 19). The Startup Will Give You Cash to Buy a House, Provided You List It on Airbnb. Retrieved from Fortune.
4Sharf, S. (2017, June 13). Millennials Get A New Way To Clear The Down Payment Hurdle to Homeownership. Retrieved from Forbes.
5Stone, M. (2017, May 2). Zillow is launching a new site just fo rmillennials looking for their first home. Retrieved from Business Insider.
6Jones, C. (2016, May 19). Recession-scarred Millennials fuel growing interest in tiny homes. Retrieved from USA Today.