If you’ve wondered why the cost of renting continues to climb, why the recent rise in home values has been comparatively modest, and why there seems to be a new apartment complex being built everywhere you look, you only need to understand that this is all part of the demographic dance—the shuffling of generations into, out of, and between houses.

We are experiencing a massive cultural and economic transition as Boomers begin to retire and Millennials enter the economy in full force with a polite, “May I cut in?” As the largest generation in this “demographic dance,” the Millennials are having the most profound effect on the entire market. Because their behavior and preferences vary so wildly from the behaviors and preferences of past generations, their influence appears even more pronounced. Compared to the Baby Boomers and Generation X, the Millennials’ effect on the market is different in both degree and in kind.

Behaviorally, it seems Millennials have stepped onto the dance floor with two left feet. They have made, and continue to make, several false and clumsy moves: They have acquired massive amounts of student loan debt; they are delaying major life events like marriage and child-rearing; they are living at home with their folks well into their twenties and even thirties; and once they move out, they are electing to rent rather than own. Each of these is a marked difference from past generations. Preferentially, Millennials prefer smaller spaces with fewer rooms, both because a lack of children demands less space and because they enjoy lower-maintenance living spaces. They prefer smaller, higher-quality spaces with luxurious amenities (granite countertops, on-site pools, etc.) versus large homes on large lots.

As a consequence, rents continue to rise much faster than home prices. For those in a position to take advantage of this phenomenon, the benefits could be extraordinary. As an example, I recently spoke with a radio listener living in Pueblo who has acquired three rental properties for less than $60,000 each, and each clears over $600 a month in rent. Demand for homes, particularly in the sub-$100,000 range, is still fairly week while demand for rental space, again particularly in the sub-$1,000 per month range, is very strong.

This will continue to be the case as long as the Fed keeps the music going, and they have given every indication that they will continue their policy of extremely low rates for the foreseeable future. It is this policy that has made the cost of homeownership extraordinarily low and, coupled with Millennials’ preference for renting, allows people like my listener in Pueblo to acquire properties that they can immediately rent out at a profit. Although Millennials will no doubt continue to prefer renting, the Fed will eventually raise interest rates, making it imperative that anyone interested in acquiring rental properties do so as soon as possible, before the cost of financing properties begins to climb.

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