Back in 2007, when things were about to go south around the world financially, millennials were just moving into their parents basements. By 2012, North American millennials were one great big basement-dwelling cohort, with fully a third of all millennials still living with their parents. In the US, that one-third figure represented the single largest live-at-home contingent since bellbottoms were a thing.
The tide comes in; the tide rolls out.
Now it’s 2017 and those millennials are capitalized and hunting for homes…if they don’t have one already. This reversal means two big things economically: the real estate and construction industries are going to lead demand in other industries as the world economy (more or less) continues to recover from the credit horrors of a decade ago. (Student debt and rising rents are both clearly a drag on all this, as the recent Crédit Suisse analysis warned, saying of millennials globally that ‘on the whole, they are not what one would call a lucky generation.’)
The second thing is more subtle: home ownership tends to drive equity ownership—mutual funds, RRSPs, TFSAs and the stock markets generally will rise. That long-wave equity growth is still accelerating: good news indeed.
Parsing out the ‘millennials leaving home’ trend reveals four drivers that will shape real estate supply and demand near-term:
1/ rents are rising, especially in pay-to-play cities—financial and tech hubs like Toronto, Montréal and Vancouver. There’s a tipping point being defined here; early days yet but housing stock so lags demand that mortgages are increasingly attractive (never mind the AirBnB phenomenon, where one-bedroom-and-den condos are cash generators for students and first job-holders well-heeled enough to own one)
2/ the economy is growing: Canada’s economy ain’t running flat out, but it’s getting there. Wage growth—frozen so low for so long—will slowly accelerate interest in home ownership versus rental
3/ simple demographics: the millennials are moving deeper into child-rearing years—and family formation means, for many, still, a home of their own is the dream to be made real
4/ fading fears of economic downturns: 2008 seems a long time ago—consciousness of economic fragility wanes and people aren’t thinking about decline but rather their own financial advancement.
It ain’t all rosy, however: debt reduction is still job one for Canadian millennials. And here’s a revealing stat: over half of home-owning Canadian millennials aren’t fond of the home-owning experience—they’re cash-poor. Some 80% intend to sell—four in ten to upgrade—but nearly two-thirds are no fans of a mortgaged life and other housing costs. They say they want out; we shall see.
The tide may have reversed, to reuse the earlier metaphor—but for many millennials, the social mobility their parents enjoyed isn’t all its cracked up to be.
The psychology isn’t clear but the emerging bottom line is that while wages are finally beginning to grow (likely as boomers retire as much as any productivity boom) there’s still real millennial concern that the interest-loaded early years of a mortgage isn’t the way to go. Canadian millennials turn to their parents for financing only 25% of the time—they’re carrying the real world costs more or less solo. So much for millennial entitlement.
We live in interesting times.