For some analysts, the scariest outcome of the collapsed home-price bubble is that it could turn an entire generation of would-be homeowners into perma-renters. Yale economist Robert Shiller floated the idea of a “lost generation” of homeowners in interviews with Reuters and Yahoo Finance. He thinks there is a chance that home prices in the suburbs may never rebound in our lifetimes.
I’ve been writing, talking, and thinking about Millennials/Gen-Y for quite some time now. It’s kind of a pet hobby. And for the Hope ‘N’ Change generation that went out for Obama in a big way in 2008 (2 out of 3 voted for the young cool hipster over that old and crusty McCain fella), they sure are facing a whole lot of Change even if that Hope thing is a bit thin on the ground.
Let’s chart some of these.
Hope Springs Eternal, but Change Is For Real
The BusinessWeek article itself is full of hope, while talking about change.
Hope: Millennials still wanna buy houses!
Other economists and real estate experts say young would-be home buyers haven’t given up on real estate as an investment.
Change: Yeah, but… (in the very next sentence this is)
It’s just that stifling student loan debt and the unstable job market have made it all but impossible—and it may be years before that changes.
Why might it take years?
There are a variety of reasons why Millennials—defined as people aged 25 to 34—are shying away from investing in real estate. Start with the 8.2 percent unemployment rate for that group (identical to the overall U.S. rate for June). This generation is also constrained by higher-than-ever student loan debt and dormant wages. And home prices, while off from their pre-collapse peak, are still high relative to pay. Sopranzetti, 48, recalls that in his mid-20s his starting salary was $26,000 a year and the average price for a new home was in the low- to mid-$100,000 range. As of two months ago, the average price for a single-family home in the Northeast was $287,600. “There is a staggering difference between the average cost of a home compared to the average salary of Millennials,” he says. “What we need is job growth.”
Yeah, how’s that job growth coming along then?
But Hope is a thing with feathers, that perches in the soul… of economists and real estate agents everywhere:
But the Harvard study also concludes that household formation is likely to spring back when job growth returns. Some young renter-workers I contacted supported that idea, as did an economist who has studied investor psychology. “This is purely an economic phenomenon, not a behavioral one,” says Ben Sopranzetti, a professor at Rutgers Business School.
It’s purely an economic phenomenon, says the 48 year old economics professor, not a behavioral one. He’s probably talking about investor psychology, but the phrase-of-hope is “household formation”.
Well, I’ve already written about Millennials and household formation. It is pretty indisputable that marriage rates are falling for the young, and that the age of first marriage keeps rising. I wrote about female hypergamy in that post, combined with the weird social effects of the 60/40 women-to-men ratio on our college campuses. But now let me add to the mix something… how does one say it… behavioral:
As I’ve said before, marriage as it is currently constituted is the worst deal imaginable for men: You give up on all other women forevermore only to run a better than 50% risk that the aging pussy you’re stuck with will walk off with half your money and the house on nothing more than her personal whim.
My advice to men has always been simple — don’t get married. The blessing of marriage is no longer needed to score a steady supply of sex and love.
That blog is incredibly popular, particularly among young men. Its views on relationships and dating and marriage are growing in influence. And in case you think this whole subculture is just that — a subculture — might I point out that one of the classic books of the genre is #12 on Amazon’s Best Seller list under “Love & Romance”? I don’t think it got to that lofty position because legions of women were buying it.
So no matter how much economists and hopeful thinkers want to suggest that declining family formation rates are economic in nature, as this New York Times article does, that hope has to deal with this change:
Two factors contribute to the decline in marriage among adults ages 25 to 34, said Andrew Cherlin, a sociologist at Johns Hopkins University: less marriage and more cohabitation, which has become far more socially acceptable, even with children.
The hope is, as the BusinessWeek article tries to peddle is that:
The market will turn—eventually. As Millennials get older, they’ll want to settle down. Credit requirements will loosen. And more buyers should be positioned to take advantage of it. “You have to look at it as a life cycle,” says Joel Kotkin, an acclaimed author on economic, real estate, and social trends. “The Millennials are going to grow older and want to settle down. The key thing is, will the economy be so crappy that the Millennials will never be able to afford a house?”
Many of those Millennials who have decent employment are trying to pay down debt. Federal student loans have bloated 360 percent since the beginning of the recession, with the average student debt held by someone who graduated in 2010 at $25,250. And banks continue to tighten lending requirements, making it nearly impossible to secure a mortgage.
But nevermind all that. The market will turn… eventually. Millennials will want to settle down, right? Right? Banks will loosen credit requirements… eventually, because… well, not clear really, but they just will. Loose credit and easy loans are a law of physics, like gravity, aren’t they?
Hope is a thing with feathers. Change, however, is often a thing with numbers:
In the meantime, the housing market has responded with a boom in apartment building. Multifamily housing development in June was up 63 percent from a year earlier, surpassing single-home production in some unlikely places, according to another John Burns study.
As the late Whitney Houston once sang so beautifully, I believe the children are our future, teach them well and let them lead the way. Given these children, I’m thinking that they’ll be leading us into the shining future of a lot of rentals.
Hope for the best. Why not? It’s free to hope. But prepare for the Change. Cuz that’s coming, and coming with numbers.