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Millennials Enter the Home-Buying Market

June 30, 2015

Kelsi Maree Borland | Orange County GlobeSt.com

http://www.globest.com/news/12_1143/orangecounty/d...

MISSION VIEJO, CA, Millennials are beginning to enter the housing market, according to Todd Cunningham, principal and co-founder of Woodbridge Pacific Group. In an earlier story, GlobeSt.com reported that the WPG is expanding its development platform and has secured $200 million in capital through its New York-based equity partner for four residential projects and land acquisitions. After speaking with Cunningham, we have learned that household formation, an increase in jobs and millennials beginning to enter the home-buying market, were among the drivers behind the strategic expansion.

This growth has been driven by an increase in household formations and jobs. We see that the millennial generation, which everybody talks about as being a renter, is starting to enter the market, Cunningham tells GlobeSt.com. We are already seeing it, as they start to get married and have kids. Once that first time homebuyer comes back to the market, it will drive everything else and push the market forward. The capital will allow the company to purchase larger sites that can accommodate anywhere from 250-400 homes, he explains, where as prior to the equity commitment, the firm worked on smaller projects.

In addition to increased demand from millennials and an increase in jobs, Cunningham says that he sees our current market mirroring trends post recession in the 1990s. The market had a pretty strong rebound in early 2013, and then in the summer of 2013 through 2014, it leveled off, he says. We felt that the market would behave somewhat like it did in the mid-90s, where it had rebounded a little bit in 1995. Then, the market paused in 1996, and from 1996 forward, there was a slow and steady growth in the market. We think 2014 was the pause, and that from here on there will be steady growth in pricing.

But, the capital doesnt only allow them to expand their projects. Having a large capital source is integral to staying competitive and to complete construction in todays market. In the 90s and early 2000s, there were banks that were lending into our industry at relatively aggressive rates. We could borrow 85% of the cost of a project from a bank, says Cunningham. The debt has now come back into the market, but we can usually only get construction loans at 50% of the total cost, so it forces in a lot more equity.

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