Young investors are much more eager to jump into home ownership and investment real estate than their older peers. Here’s why.
Young investors are much more eager to jump into the real estate market, according to new Millionaire Corner research that indicates older investors remain cautious due to substantial losses suffered during the housing crisis.
More than 60 percent of young high net worth investors believe now is a good time to invest in real estate, according to a wealth study completed by Millionaire Corner in the first quarter of 2012. In comparison, about half of high net worth baby boomers, and 43 percent of high net worth senior citizens would buy real estate in the current economic environment. (Millionaire Corner defines the high net worth as having investable assets of $5 million to $25 million.)
Record high housing affordability – a combination of record low interest rates and discounted prices in relation to income – is attracting investors to the real estate market, according to the National Association of Realtors. Younger investors, with a longer time horizon, may find the market particularly attractive. Historically, real estate keeps pace with inflation, despite boom and bust cycles.
Investors in their 50s and 60s are more prone to see real estate investment as a risk not worth taking. Not surprisingly, the older investors also report significantly higher losses in home value over the recession and recovery. More than 40 percent of investors age 60 and older described the value of their home as “substantially lower” compared to five years ago, and more than 36 percent said the value was “lower” in a monthly survey conducted by Millionaire Corner in March. More than 36 percent said the value was “lower.” Fewer than 10 percent of the retirement-aged investors reported their home value as being “higher” or “substantially higher.”
In comparison, more than 30 percent of investors age 40 and younger described their home value as higher or substantially higher compared to five years ago, while 22 percent said it was “lower” and another 22 percent, “substantially lower.”
It follows that younger high net worth investors are more heavily invested in a primary home or second home, with a mean value of $862,000 and $753,000, respectively, according to a Millionaire Corner study of financial product ownership conducted in the fourth quarter of 2011. They are also more likely to own undeveloped land (33 percent), residential rental property (42 percent), commercial rental property (23 percent) and other types of real estate (26 percent).
A recent survey by Truilia, an online marketplace for homes, suggests that young investors may have more than profits in mind when it comes to home ownership. A Valentine’s poll indicates that women are 15 times more likely to date a homeowner vs. a renter, while men prefer homeowners vs. renters six-to-one.