Are Young Buyers Being Priced Out of the Market?

19 Aug Are Young Buyers Being Priced Out of the Market?

The California real estate market has been on fire for much of 2013, with prices rising back to pre-recession values and bidding wars the name of the game. While this may sound like good news, for one segment of buyers, it’s anything but. Known as “Gen Rent,” would-be buyers in their 20s and 30s have been priced right out of the housing market.

At this year’s Awesome Females in Real Estate (AFIRE) conference, Leslie Appleton-Young, chief economist for the California Association of Realtors, discussed this latest trend among others concerning the California real estate market like shadow inventory.

“Gen Rent,” as they’re affectionately known, has given many experts the perception that they’re simply not interested in purchasing homes. However, according to data from the California Association of Realtors (CAR), it’s exactly the opposite. They have found that about 75% of this age group is interested in owning a home, but it’s the lack of inventory that is keeping them out of the game.

Appleton-Young says that investors who returned to the California market back in 2008 have largely depleted the stock of available homes. From traditional investors to hedge funds and other groups, REO portfolios were heavily targeted by these groups so they could quickly fix them up and put them back on the market as rentals.

It’s a marked shift from years ago when investors were purchasing homes and flipping them. At present, just 17% of investors elect to flip whereas the other 83% are holding onto the properties and using them as rentals. For Generation X and Y buyers, they’ve been quickly priced out of the market as the lack of supply has resulted in multiple offers and bidding wars that have driven prices up as much as 20-40% in some areas.

Making things even more complicated is the fact that many buyers are coming to the table with all-cash offers to secure a deal. Right now, 30% of all offers in California are made with cash, which is the highest percentage ever reported. For young buyers, using traditional methods of financing is all but required since they don’t have a nest egg big enough. This also means they can’t compete with these kinds of buyers who are running the market.