More Millennials are moving out of mom and dad’s place and buying houses — in the Midwest.

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Aloha Capital had another productive month of private lending in May. All Aloha loans are collateralized by single & multi-family residential real estate, first position liens and personal guarantees from sophisticated real estate investors. Since inception of the Fund, Aloha has originated over 570 loans.

 Nearly one in four Millennials still live with their parents. A generation ago, baby boomers at the same stage of life were starting families and buying houses, but today’s young adults have been slow to leave the nest. In 1981, 56% of early Baby Boomer 25-to 35-year-olds owned houses. Today only 37% of Millennials own their own homes. But this is changing. Surveys show that Millennials — just like their parents — are believers in the American Dream of owning a house.

It’s just taking them longer to realize the dream. And given the expense of housing in the big coastal cities, many young adults forming families are moving to more affordable markets. Like the Midwest. Millennial home ownership rates are currently about 36% — that compares with nearly 80% for baby boomers. But that 36% is an increase from 34.7% last year. According to the Wall Street Journal, that “was by far the largest increase of any age group” over the prior year. 

As Millennials — the largest demographic in the U.S. — increasingly get married, have kids and buy houses, they will be the primary drivers of the housing market. For those in a housing-related business, understanding which markets Millennials are gravitating toward could be helpful. Today’s young adults haven’t chosen to live in their parents’ basements because they’re lazy or because they love mom’s cooking.

Surveys show that the majority of millennials – including the vast majority of renters – eventually want a home of their own. But a combination of factors unique to recent history have contributed to their lack of home ownership:    

  • Millennials are marrying later in life. One of the most significant demographic shifts over recent decades is the demise of marriage and the rise of single people. In 1960, 72% of American adults aged 18 and older were married; today, just over 50% are.
  • A difficult job market. A decade ago, Millennials graduated from school into a weak economy where jobs were scarce. It’s taken them a while to get ahead.
  • Student loan debt. Nearly half of Millennials have cash flow tied up in paying off student loans, some significantly so.
  • High rents. The cost of renting has skyrocketed in many markets — especially on the coasts. So, despite the social stigma, it makes good financial sense to live with the parents.
  • Housing availability and costs. Baby Boomers are making it difficult for millennials to find starter homes — the older generation is staying put, keeping inventory tight. And of course, the cost of a new home has soared in many markets in the last few years.

 For Millennials who live in the pricey housing market cities, buying a house is simply not an option. According to a study by Apartment List, the average Millennial needs 28 years to accumulate funds for a San Francisco down payment, compared to nine years in Minneapolis and less than three in Kansas City.

 Increasingly, for many Millennials the resurgent but affordable Midwest cities are places where dreams of home ownership can become a reality. Affordability — median home price divided by median income

Region Name
San Jose, CA10.60
Los Angeles-Long Beach, CA9.29
San Francisco, CA9.08
New York, NY5.74
Seattle, WA5.64
Portland, OR5.33
Boston, MA5.27
Denver, CO5.20
Washington, DC4.02
Minneapolis-St Paul, MN3.35
Kansas City, MO2.77
Indianapolis, IN2.53
Oklahoma City, OK2.46

 If you haven’t noticed, the Midwest is experiencing a mini-boom — and some of it can be attributed to Millennials seeking affordable places to raise a family. And the smaller Midwestern cities like Kansas City, Minneapolis, Indianapolis, Columbus, Grand Rapids, and Des Moines are some of the fastest-growing. This is a confluence of demographic trends that could be sustained by economic factors for years to come. You’ve seen us write about the Midwest from many angles, and the Millennials situation is just another arrow in the quiver of its SFR real estate.

And, of course, it’s no coincidence that the bulk of our deal flow is coming from cities like Kansas City and Indianapolis. Even the more expensive Aloha markets like Denver and Washington, DC show favorably in the income to home price analysis. 

In the 1980’s baby boomers fled expensive coastal cities seeking affordable single-family homes. Back then it was the Sun Belt cities that were relatively affordable and attracted droves of new households. Today, the baby boomers’ kids are starting families and likewise finding things more affordable elsewhere — this time it’s the Midwest where they’re moving.

 As Millennials increasingly create households and buy houses, look for this trend to continue. Aloha Fund had a nice May, above our targeted monthly return, and June appears to be doing so as well.

The Fund is actively seeking new capital; please reach out with any questions, additions or referrals. 

We greatly appreciate your patronage and trust.

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