IT’S COMING: THE NEXT WAVE IN HOUSING, POWERED BY MILLENNIALS

Millennials, the 90 million people born between 1981 and 2000, are poised to make a major impact in the housing marketSponsored by The True Life Companies (TTLC)

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FINALLY, despite the challenges posed by underemployment, subpar wage growth, rising rents, and student debt, the huge millennial generation is amassing the necessary down payments and starting new households. According to a Demand Institute survey millennials will form 8.3 million new households in the next five years. The same survey found that 79% of millennials expect their financial situation to improve and 74% expect to move in the next five years.1

Currently, millennials make up 32% of home buyers,2 and 70% of first-time home buyers,3 the largest share in both categories.

This white paper examines the trends and how they support an emerging alternative niche investment—land targeted for approved residential development.

THE NEED FOR ENTITLED HOMESITES As demand builds for suburban single-family residences—the preferred home for 52% of millennials who are seeking to buy or rent4 —so does demand for ready-to-build land for residential development, known as entitled homesites. The sponsor of this white paper, The True Life Companies, specializes in this market segment.

THE “RENTER GENERATION” NO MORE Millennials have earned that label for understandable reasons.

The great recession suppressed their earnings and ability to save up a down payment. Millennials are already burdened by a higher student loan debt than any previous generation, making it difficult to save for a down payment. Now, however, new Freddie Mac, Fannie Mae, and FHA loans are allowing millennials to get mortgages with smaller down payments and more affordable monthly payments.5 According to the Bureau of Labor statistics, unemployment is showing gradual, slow improvement, going from 5.7% in January 2015 to 5.0% in November.6 The average hourly wage grew 2.5% from October 2014 to October 2015, the best growth rate since the great recession.7

As the economy improves, millennials are beginning to respond to their innate nesting instinct: according to a study by the National Association of Realtors, 39% of Gen Y homebuyers (millennials) were motivated just by “the desire to own a home of their own.”8 The study also found that for the last two consecutive years millennials formed the largest group of recent buyers. Although first-time buyers’ share of all home purchases had slipped to 32% in 2015, historically first-time buyers account for 40% of all home sales.9 Three-quarters of millennials and half of all adults say they are somewhat or very likely to move in the next five years.10

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The Los Angeles Times, February 1, 2015 quoting Kathleen Hart, Wenatchee Washington

We Were just tired of renting, tired of sharing With roommates and not having a place of our oWn. finally the numbers added up.”

“

THE LARGEST GENERATION Millennials, or Generation Y, overtook baby boomers in 2015 and now make up the largest generational cohort. As the Pew Research Center chart below indicates, they’re projected to do so for years to come.

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OVERTOOK BABY BOOMERS INMILLENNIALS

2015

80

70

60

50

40

30

20

10

0

79 MillionMillennials

50 Million

18 Million

2014 2028 2036 2060

Population Projections by U.S. Generation

Note: Millennials refers to the population ages 18 to 34 as of 2015. Source: Pew Research Center tabulations of U.S. Census Bureau population projections released December 2014.

Millennial Baby Boomer Gen X Silent

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Who are these millennials and how are they different from previous generations? The table below provides a brief definition of each current generation. The data is derived by a comprehensive Generational Differences Chart developed by the Workflow Management Coalition. There are now 87 million millennials

in the U.S. compared to 76 million baby boomers, the next largest generational cohort. And the most common age in America is 22, a millennial. Millennials are far more diverse than baby boomers. Only 56% of them are white compared to 72% of boomers.11

Baby Boomers

1946-1964

52-69

The “Me” generation

Civil Rights, Vietnam War, Cold War, Sexual Revolution

Equal rights, personal gratification, team oriented, optimism

Generational Differences

Traditionalists

1900-1945

70+

The silent generation

WWII, Korean War, New Deal

Conformity, duty, family, law and order, patriotism

Millennials

1981-2000

16-35

Generation Y

Digitial media, cell phones, AIDS, terrorist attacks, economic expansion

Achievement, consumerism, confidence, technical savvy, advanced education, fun

Birth years

Current age

Also known as

Influential events, trends

Core values, attributes

Generation X

1965-1980

36-51

Post boomers

Watergate, Energy crisis, environmental awareness, dual income families

Balance, diversity, fun, high job expectations, pragmatism, informality

OWNING VS. RENTING: IT’S NOT ALL ABOUT COST There’s a widespread perception that owning a home is less expensive than renting. Although it may be influencing many first-time homebuyers, it’s a perception based on several false assumptions. Upon close analysis it doesn’t hold up. For one thing, costs of renting vs. buying vary greatly by location. As can be seen in the chart at right, in all but a few metro markets buyers will be paying a premium over what they’d pay in rent. For example:

• San Francisco buyers will pay an average of $2,556 a month more than renters

• The U.S. homebuyer will pay an average of $146 a month more than a renter

• By contrast, a homebuyer in Tampa will pay $125 less than a renter.

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Chart courtesy of John Burns Real Estate Consulting

However, cost is not the only—nor necessarily the most influential—factor in the buy vs. rent decision. Buyers are highly motivated by the sheer desire to own a place of their own. The fixed monthly payments and long-term financial stability of home ownership are strong attractions to millennial homebuyers.12 Not to mention the ability to deduct their mortgage interest from their income tax, which as renters they couldn’t do. They also find that homes for sale are typically higher quality than those for rent. And buyers have the option of improving or customizing a purchased home to satisfy themselves rather than the landlord. They prefer homes that aren’t “cookie cutter” and according to one survey 30% would choose a fixer-upper over a move-in ready home. They want homes that are compatible with their strong interest in technology and innovation.13

Millennial home ownership similarly varies by location, from a low of 23% in Los Angeles, one of the most expensive real estate markets in the U.S., to a high of 56% in Grand Rapids, Michigan, a far more affordable market.14

ARE FIRST-TIME BUYERS MAKING A COMEBACK? Historically, first-time buyers have made approximately 40% of all home purchases. That dropped dramatically to 33% with the great recession, and was as low as 28% in July 2015.15 But first-time buyers may be bouncing back. They constituted 32% of all home buyers in August 2015. That slipped to 29% in September but rose to over 30% in October.

Millennials comprise 68% of first-time buyers and that percentage shows promise to grow. A TD Bank survey found that 67% of millennials say they’ll be looking to purchase their first house within two years.16 The average age when people get married for the first time in the U.S. is currently 28, the high end of the millennial age range. Sixty-five percent of older millennials say they intend to purchase a home in the next three months17 and have managed to stabilize their finances by paying down student loans and other debts.

According to realtor.com, the top 10 reasons for home shoppers of all categories to be in the market are:

• Increase in income (35%)

• Tired of current home (34%)

• Favorable home prices (32%)

• Favorable interest rates (28%)

• Increasing rent (22%)

• Change in family in circumstances (20%)

• Planning to increase family size (19%)

• Increase in family size (18%)18

These are reasons shared by many millennials, who also have another overriding reason: they’ve been waiting long enough, and they finally have the wherewithal to buy a “home of their own.”

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OF FIRST-TIME BUYERS ARE

MILLENNIALS

68%

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HOUSING’S CONTINUED EXPANSION The coming of the millennials promises to accelerate the momentum of an already dynamic housing market, which has seen significant YTD gains over last year in key categories:19

• Existing home sales up 7.9%

• New home sales up 17.7%

• Housing starts up 12.0%

• Median home price of sold homes up 6.4%

• Home price index (FHFA) up 5.5%

• Rents (CPI) up 3.6%

People need homes, and the U.S. is experiencing major population growth. According to the Census Bureau, 40 million more people are living in the U.S. today than there were on January 1, 2000—322 million versus 282 million. A baby is born every eight seconds, while there is a death only every 12 seconds. An international immigrant arrives every 33 seconds. Result? The country gains two to three million new people a year. People who need homes.20

MEETING THE DEMAND The builders and developers who will be providing homes for millennials also have a need: entitled residential lots, or ready-to-build land for single-family homes. Only the largest builders and developers can afford to maintain an inventory of entitled lots. Other builders need to find a solid supplier to support their business plans. That’s where The True Life Companies (TTLC) come in. We specialize in the types of land the changing market seeks. Our inventory is concentrated in suburban properties in the West, where the greatest growth has been taking place. In metro areas like Los Angeles, Phoenix, Denver, the Bay Area, and Sacramento. For investors and their advisers, TTLC represents a niche asset class that can fill in the gaps to help diversify and balance a portfolio. Our carefully selected properties offer investors both defensive and offensive attributes: capital preservation and inflation protection as well as asset appreciation.

Sponsored by The True Life Companies, real estate investment specialists operating in California, Arizona, Colorado, Texas and Hawaii. For more information on our company and investment opportunities, please visit our website: http://thetruelifecompanies.com/partnership/ or call Joe Fraser at 925.824.4303.

Please contact us if you have comments on this white paper or wish to order reprints.

Disclaimer: These materials are for informational purposes only and do not constitute an offer or solicitation to sell any securities. Offers to sell securities will only be made to accredited investors and people qualified to purchase such securities in an offering exempt from registration under applicable securities laws pursuant to separate confidential offering documents. Investment involves a high degree of risk including the risk that the entire amount invested is lost. There can be no assurances The True Life Companies’ targets or investment objectives will be met. In considering the performance of any affiliate of The True Life Companies, the reader should keep in mind that past performance of any other affiliate of The True Life Companies is not indicative or an assurance of the future performance of any affiliate of The True Life Companies. There is an inherent risk of loss in all investments. Past performance is no guarantee of future results.

Copyright ©2016, The True Life Companies, All Rights Reserved.

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1 The Demand Institute, “Millennials and Their Homes,” http://demandinstitute.org/demandwp/wp-content/uploads/2015/01/millennials-and-their-homes-final.pdf

2 US News & World Report, “Why Millennials Are Dominating the Housing Market”, August 15, 20153 realtor.com Real Estate News, November 5, 2015, http://www.realtor.com/news/real-estate-news/2015-nar-profile-of-home-

buyers-sellers/4 The Demand Institute, Millennials and Their Homes, http://demandinstitute.org/demandwp/wp-content/uploads/2015/01/

millennials-and-their-homes-final.pdf5 Builder Magazine, “Millennial Home Buyer: Fact vs. Fiction”, January 2, 20156 Bureau of Labor Statistics, Labor Force Statistics from the Current Population Survey, http://data.bls.gov/timeseries/

LNS14000000 7 Business Insider, “Wage growth is finally happening”, November 6, 20158 National Association of Realtors, “Home Buyer and Seller Generational Trends Report 2015”9 realtor.com Real Estate News, November 5, 2015, http://www.realtor.com/news/real-estate-news/2015-nar-profile-of-home-

buyers-sellers/10 Urban Land Institute, America in 201511 CNN Money http://money.cnn.com/interactive/economy/diversity-millennials-boomers/12 National Association of Realtors Generational Survey, March 11, 201514 New Geography, December 15, 2015, “MillenniaL Lifestyles Will Remake American Homes”14 Greater Albuquerque Association of Realtors15 National Association of Realtors News Release, September 201516 TD Bank Survey, First Time Buyers Ready to Move the Market, https://mediaroom.tdbank.com/2015-07-14-First-Time-Home-Buy-

ers-Ready-to-Move-the-Market-New-Survey-Finds17 realtor.com Housingwire, June 29, 2015. 18 RIS Media, December 4, 2015 http://rismedia.com/2015-09-26/the-story-of-2015s-housing-market-millennials-are-not-the-rent-

generation/19 Forbes Business, October 16, 2015, “Housing Will Expand Despite Economic Weakness” http://www.forbes.com/sites/lawrenc-

eyun/2015/10/26/housing-will-still-expand-despite-economic-uncertainty/20 U.S. News, “The 2015 U.S. and World Populations” http://www.usnews.com/opinion/blogs/robert-schlesinger/2014/12/31/us-

population-2015-320-million-and-world-population-72-billion

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