A report released by the W. P. Carey School of Business last month reveals a changing housing market that partially reflects the decisions of college-age millennials.
The report was mostly dismal, as it marked a slowdown in house sales and prices for the coming year. This prediction was made according to the rate of sales being dramatically lower than the same month in the previous year, said Michael Orr, the director of the center of real estate theory and practice at the W. P. Carey School.
Even the luxury home market, which seemed to be avoiding the decline experienced by the single-family home market, is starting to slip, Orr said. He explained that although supply is relatively small for homes, the demand is weakening enough so that there’s no price pressure.
But with rental properties, the opposite is true.
“The main area with upward pressure is in the rental houses,” Orr said. “Rents generally will begin to rise in the more populous spots, and Tempe is one of the more populous spots.”
He said the change will likely start slowly, with just a few percent increase per year. But this trend is likely to significantly affect ASU students, who rent apartments in huge numbers around the Tempe campus.
Orr said the only way to combat the rising prices will be to get competitive, and creative if necessary.
“There’s a fair amount of competition, so if you’re late in the game, you’re probably not going to get anything very nice, particularly at the affordable end,” he said. “It’s going to be very competitive. … Someone was telling me about students in Denver that rented out a luxury penthouse and shoved a bunch of people in it and were actually making a profit, so enterprise will find a way.”
One tool which demonstrates this enterprising spirit is Splitwise, a web tool and mobile app that was originally created to help roommates avoid awkward conversations about expenses and IOUs. But the app was expanded in October 2013 to also provide information about which zip codes near college campuses have the cheapest rent, as well as which floor plan is the most cost-effective with roommates.
Zoe Chaves works for the business development and marketing aspect of Splitwise and said the app is designed to help students avoid unnecessary costs.
“We’re just making that data available so that students can understand the decision better,” she said.
Chaves also designed a specific page to display information about Tempe’s cheapest options to help ASU students.
“I hope that that page can be a resource for students moving forward,” she said.
But besides coping with the changes in the real estate market, many real estate experts believe college-age millennials are actually helping to cause this shift in the first place, along with baby boomers.
Mark Stapp, the executive director of Masters of Real Estate Development program at ASU, said growing up during a recession has affected the way millennials approach their housing options. He said most millennials are waiting later to get married, start families and purchase houses because they are wary of unstable markets, while baby boomers are also downsizing in their retirements.
“This recession was long enough that there was a significant shift in people’s lives,” Stapp said. “Simultaneously, baby boomers are getting to a point in their lives where they’re becoming empty-nesters. At the same time, their kids are emerging into the economy as the consumers. Seven years roll by, and a very significant portion of millennials are emerging to be part of the economy, and they’re damaged.”
Stapp explained that this is an interesting time in the market because of the deep similarities in the housing demands of the young and the retiring.
“To me, it’s very interestingm because you have the old folks who have the same desires as the young folks,” he said. “We don’t want responsibility. We don’t want to be tied down. We want to go cool places. We’re more interested in experience rather than transaction.”
Stapp said this lifestyle is translated into urban housing, which is drawing demand from traditional houses.
The market will eventually return to its usual state, with a higher demand for single-family homes, he said. However, there needs to be an increase in Arizona wages before a majority of people feel financially secure enough to shop for houses, Stapp said. But for now, urban housing for the young and old seem to be the driving force in the market.
“Single-family housing in suburbia is no longer really the primary driving focus at this moment,” he said. “We’re emerging from a transactional economy to a transformative economy. It’s no longer, ‘Gee, I need a house.’ It’s more about the experience.”
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