The trend is Shifting Demand Away from Median-Priced Homes and In-Store Shopping, Says Bryan Nazor
The middle class, or that group of Americans who make between 66 percent and 200 percent of the median income, is shrinking. Among households headed by individuals younger than 65, the percentage of those considered middle-class has shrunk from 57 percent to 45 percent since 1970. The percentage of households with upper-class incomes has increased, while the percentage of those with lower incomes also has increased. This demographic shift has significant implications for both residential and commercial real estate markets, says Bryan Nazor.
Bryan Nazor on Commercial Implications
The trend of the shrinking middle class affects commercial real estate in two major ways. The first is that there is a shortage of affordable rental housing. People who a generation ago may have been able to own a home can no longer do so and they are driving up demand for apartments. To make matters worse, investing in apartment buildings to serve working-class families is not profitable enough in some metropolitan areas to attract large real estate investment firms. Opportunities, however, may exist in these markets for smaller investors who are willing to invest in properties with a small number of rental units, says Bryan Nazor.
The second way this trend affects commercial real estate is in fewer people shopping in many brick-and-mortar stores. While this change in behavior is universally true because of the boom in e-commerce, it has significantly affected stores and brands that cater to the middle class. Many of these stores are closing and leaving shopping centers and malls with a high vacancy rate, Bryan Nazor says.
Bryan Nazor on Residential Implications
The trend also impacts residential real estate, Bryan Nazor says. Homes near the median price are seeing less demand while homes below and above the median price are seeing more demand. This is particularly true of those homes priced about 50 percent above the median price in the market. This has created opportunities for builders to create either high-end housing developments. Some families in the middle class may be able to afford the monthly payment for median-priced homes but are unable to save enough for the down payment. Use of government-backed loans and private financing may be ways to help them become homeowners, Bryan Nazor said.
Bryan Nazor is president and chief operating officer of Main Street Title & Settlement Services LLC, in Hackensack, NJ. Bryan Nazor is a graduate of Fairleigh Dickinson University and New York University Law School. He is a member of the bar in New York and New Jersey.