Zeitgeist – Sign of the Times

They’re Still Not Buying It

Buy Vs RentThey get organic produce delivered to their doorsteps by Farm Fresh to You®, have Spotify® accounts, take Uber® to their favorite craft beer spots and are happy to drop $450 on admission to The Coachella Music Festival. Let’s face it: millennials value experiences! But, as this young cohort, 92-million strong, heads into their traditional peak home-buying years, will millennials continue to rent or will they finally pony up a down payment and take out a mortgage?

At the end of 2014, Zillow predicted that we would see a significant increase in millennial home buying in 2015 as rising rental rates would force many renters to consider the relative value of homeownership. Additionally, there are considerable benefits to buying a home today, including strong affordability driven by historically low interest rates. According to Zillow’s Breakeven Horizon Report – which calculates the average point at which buying a home becomes less expensive than renting the same home – buying makes more financial sense than renting if you’re planning to stay longer than 1.9 years. Also, U.S. renters spend 30% of monthly income on housing while homeowners spend just 15%. Despite all of this seemingly compelling data, 20% of renters surveyed by Zillow say they prefer to maintain flexibility by renting and 53% say poor credit and other financial barriers, including lack of a sufficient down payment, keep them from buying.

As the job market continues to improve and new condo construction increases the inventory of affordable housing, some millennials may soon take the leap into home ownership as they head into their peak spending years. But for now, the desire to maintain a flexible lifestyle and the perceived financial barriers of buying a home are keeping the majority of millennials in apartments.

Has the Art Market Peaked?

“I think it’s going to continue. There is a lot of wealth out there and people figure they can borrow at such low interest rates, so why not go out and buy a $40 million, $50 million, $170 million painting?”

– Scott Black, Founder and President, Delphi Management

“The art market is fueled by a growing number of ultrahigh-net-worth individuals and a fixed number of quality historically relevant art works. The market remains strong and remains a viable asset class.”

– Thomas Galbraith, Managing Director of Auctions, Paddle8

“The masterpiece level of the market is selling extremely well, while the rest of the market is trading within estimates. Prices can’t go up forever, but we continue to see interest from collectors globally for these top works. I see it continuing.”

– Suzanne Gyorgy, Head of Art Advisory, Citi Private Bank

“The continuation of record-breaking prices indicates that the art market is strong and continues to garner increased attention worldwide. It is difficult to say where the peak is, but prices like these should reassure investors that there is strong demand for quality art.”

– Diana Wierbicki, Global Head of Art Law, Withers Bergman

[Editor’s Note: These quotes appeared in a May 2015 edition of Barron’s magazine]

Where are All the Regular People Living?

As the demand for new, luxury rental communities in A+ locations seemingly skyrockets, blue collar renters –
factory workers, policemen, health care workers, etc. – are being priced out of many urban locations. This tendency has caused increased demand for suburban apartments, a trend which isn’t making headlines but is growing. As developers, institutional investors and REITs continue to make big bets on the hottest and trendiest markets, fundamentals in suburban markets continue to strengthen.

City SceneIn the first quarter of 2015, the vacancy rate for suburban apartment properties hit 3.9% compared with the overall vacancy rate of 4.2% (while urban properties rose to 5.8%). Since 2009, suburban vacancies have declined by about half – by a whopping 4.2% (from more than 8%)! Part of the reason for the tight vacancy is that suburban development has lagged urban development. In 2014, inventory growth in suburban markets increased by 1.4% versus a 3.6% increase in urban markets. Some analysts expect an increase in suburban migration as the oldest millennials – many of whom still prefer to rent versus own – are having children and requiring larger living spaces. Couple this with superior schools and better affordability and moving to the ‘burbs starts to make sense.