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TH E M R EP O RT | 49 O R I G I NAT I O N S E R V I C I N G DATA G O V E R N M E N T S E C O N DA R Y M A R K E T THE LATEST DATA Millennials Buy In Despite headwinds, a study found a significant uptick in millennial homeownership. H omeownership might not be an immediate option for many millennials, but according to a study by Clever Real Estate, it remains a core component of the American Dream for 84 percent of potential homeowners of this generation. This generation is here to stay, not only as homebuyers but also as investors in real estate. For the study, Clever Real Estate surveyed 1,000 homebuyers who were planning to purchase a new home within the next year. Fifty-one percent of these respon- dents were aged between 18 to 34 years (the age-group classified as millennials). The study revealed that millen- nials were 52 percent more likely than Baby Boomers or Gen-X to invest in property with 9 percent of those surveyed saying that they were interested in renting out new properties for passive income. Looking at why millennials were buying homes, the study found that the need for more space was the number one reason that was driving more millen- nials towards homeownership. Fifty-four percent millennials cited it as a reason. This was closely followed by the belief that real estate was a sound investment (43 percent), it's more affordable than renting (43 percent), and the need for more privacy (38 percent). Millennials weren't afraid of buying fixer-uppers either with around 68 percent of those surveyed noting that they were willing to purchase a home that required repairs. However, the study pointed out that millennials failed to realize that a home need- ing major repairs was more likely to hurt them than save money. Citing a report by Home Advisor, the study said that the average cost to remodel a bath- room in 2018 was $9,742, whereas a kitchen was $22,145.7 and that debt-ridden millennials or those struggling to save enough for a down payment "should think twice before investing in a home in need of immediate, structural repairs." With down payment one of the biggest obstacles cited by millennials to homeownership (37 percent), the study indicated that 31 percent millennials were look- ing to purchase more affordable homes in the $100,000 to $199,999 price range. Getting It REIT Examining construction costs, rental incomes, and volatility in the U.S. REIT market. I n a report entitled "2019 Global Alternatives Outlook," JPMorgan Chase sheds light on global trends and opportunities in the real estate industry. The report indicated that several investors in the U.S. real estate market have "tilted their new al- locations to value-added properties in the search for higher returns, reaching an inflection point." The key driver of this shift is a con- siderable increase in construction costs for property improvement or development that is thinning the return premiums for construction risk—leading to a limited supply of new core properties. This has al- lowed some stabilized, fully leased core properties to sell below the now elevated cost of building new unleased assets, the report stated. According to the report, since early 2016, the income from leases of existing U.S. core assets has been growing at a faster annual rate (4 percent to 5 percent ) than core property values (2 percent to 3 percent), since early 2016. JPMorgan Chase anticipates the rising construction costs to help support the increase in rental incomes. As new properties have to charge higher rents to be viable in the face of rising construction costs, existing core properties are forecasted to raise rents with less risk of losing tenants. However, according to the report, the up- ward spike in construction cost is likely to limit new space available for lease—another positive for rent growth. It indicated a further up- side in core rents and valuations, given the econ omy and demand continue to hold up. The report stated that volatil- ity has returned to the equity markets including the real estate investment trust (REIT) space. It pointed out that REIT equity is far more volatile than the value of its underlying real estate, on account of its varied investor base comprising exchange-traded funds, hedge funds as well as momen- tum players. JP Morgan Chase in- dicated that investors might want to consider investing throughout the REIT capital stack and buy- ing the debt—approaches that will meaningfully reduce a REIT portfolio's volatility and offset the leverage embedded in REIT equity. The report also suggests the use of liquidity and volatility of the REIT market to potentially enhance returns. "Even in a market that is largely priced to perfection, knowledge- able, experienced global investors with a broad toolbox can find a robust set of attractive real estate opportunities," the report reads. At a macroeconomic level, the report highlighted that tighter labor markets and rising wages have begun pushing prices higher across the developed world, while weaker currencies and higher commodity prices have lifted inflation in emerging markets. U.S. economic growth is forecasted to average around 3 percent through the middle of 2019. Globally, core real estate returns have averaged just over 10.5 percent since late 2010, the report revealed. Valuations have been a significant driver of those returns, however, leaving much of the real estate market fairly priced.