Tuesday, March 18, 2014

Are millennials being squeezed out of the property market?

In America today, millennials, also known as Generation Y (those born between the 1980s and early 2000s), are being squeezed out of the housing market because of rising home prices, higher unemployment rate among millennials, lack of down payment and inability to get a mortgage because of college loans.  

While this generation is the future of America's housing market, developers are targeting the older generation who are much stronger financially, partly from built up equity in properties they already own.

If down payment is an issue, have parents help out and structure a plan for repayment. If getting a mortgage is the issue, have a parent co-sign on the mortgage.
The general advice of saving for a down payment or repaying existing debts take a very long time, years.  Meanwhile, housing prices will continue to increase and down payment required becomes larger as time goes on.

Housing prices will not wait for a millennial to save up or get a higher paying job .  It keeps going up because of inflation and demand.  The risk of delaying is they will never know when they'll actually be able to buy.  

The Power of Leverage
Equity growth from owning property is the largest source of an American's wealth.  This is the fast track to wealth building. 

Reason is that homeowners grow their wealth with the benefit of leverage.  Their down payment is only a fraction of the property's value but they benefit from the appreciation of the property's full value.  As equity builds up, the homeowner's financial picture becomes stronger and more investment options become available.  

The trend of millennials' inability to buy is cutting away their ability to grow wealth through this very powerful wealth building strategy.    

Wei Min Tan is a Manhattan, New York condominium specialist focused on investor and foreign buyers.  He has been interviewed by The New York Times, Wall Street Journal and CNN on various aspects of Manhattan property.  Wei Min can be reached at tan@castle-avenue.com

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