Could Generation Y Lift the Housing Market?

generation yA few years ago, the real estate community was gripped with Millennial Fever: the idea that the Millennials (or Generation Y), born between say 1983 and 2003 (according to NewGeography.com anyhow) and representing the largest demographic group in the United States after the Baby Boomer generation, would be the single most important thing to housing. Quite a few people, even now, believe that Gen Y would transform the nation by the sheer weight of their numbers.

Naturally, a population that large will have enormous impact on home purchases, no? Back in 2008, a couple of Harvard men (George Masnick and Eric Belsky) showed that by 2010, the Millenials (now aged between 25 and 34) would constitute 8 million new homebuyers, by far the largest and most important segment.

Well, 2010 has come and gone, and the National Association of Realtors (NAR) has released an interesting new study, in which it concludes, "The share of adults under age 35 living at home, especially among those aged 25 to 34, is at the highest level since 1981."

And as we all know, the housing market is not exactly the picture of vibrant health.

But there are still those optimistic sunny people who believe that surely, this enormous group, some 80 million strong, would get married, have babies, and therefore, buy houses. They're not wrong. Some will, because homebuying is driven by family formation more than just about any other factor.


Yet, I don't think that counting on the Millennials to save the housing market is such a good bet. Here are four reasons why:

1) Millennials Got No Money

On my personal blog, I mused openly on the Millennials back in 2010. As referenced there, Search Homes for Sale See photos of homes for sale in your area and across the country on AOL Real Estate Robert Samuelson of the Washington Post noted that 37 percent of those aged 18 to 35 were unemployed, the "highest in more than three decades," and that only 41 percent have full-time jobs, down from 50 percent in 2006. It isn't exactly a secret that this economy somehow seems to manage recovery without any jobs, and the younger, less-experienced get hit the hardest. No wonder more Millennials live at home with mom and dad than at any time in 30 years.

But it gets worse! According to a Yale economist, Lisa Kahn, the impact of of recessions on lifelong earnings is extremely bad and long-lasting. Each 1 percent of unemployment leads to 7 percent drop in income for new college graduates, but even seventeen years later, those college grads who entered the workforce in a recession earned 10% less on average than people who did not face a recession. Uh-oh, Millennials.

2) Millenials Will Be the Chump Generation

Huge millions of those 80 million Gen-Y'ers celebrated the election of Barack Obama in 2008. They worked hard for Obama, for Hope and Change. Three years later, the country is some $15 trillion in debt, and adding more to it daily, and we'll have to see where that ends up. When the Baby Boomers retires and start collecting Social Security and needing Medicare, just who do you imagine will be footing that bill?

Sure, Generation X will have to cough up a bunch of dough, but we're tiny in number compared to the 80 million (at least, the 41 percent of those 80 million who have full-time jobs) Millennials, who by the way, are making 10 percent less on average over the next couple of decades. If you think their tax burdens are going to be less during their prime homebuying and family formation years....You have the kind of faith that sustains prisoners in Chinese jails.

Less income + higher tax burdens = Generation Chump. Thanks for paying, kids!

3) Millennial Family Formation Will Be Lower

Family formation is the key to driving new homeownership. So with 80 million of them out there, there oughta be some serious family formation going on, right? Maybe. I'm not so sanguine.

You see, the gender gap amongst Millennials in education and employment is something we have never seen before in this country... or any country. Some universities today have two male students for every three female (which makes for interesting social scene on Friday nights). Women earn more bachelor's degrees, more advanced degrees, even more doctorates then men do. Women are now the majority of the workforce. Women are taking over the kinds of jobs that were male dominated, like finance and law.

Maybe Millennials will be different from every other generation that came before it in every single country in the world, but for the most part, female lawyers do not marry (that is, "family formation") male janitors. Smart, college-educated, employed women do not marry the barista from Starbucks. Date? Sure. Fun and games? Of course. Family formation? I seriously, seriously doubt it.

Maybe it will be up to the Millennial single women (and there are going to be a lot of you, judging by college graduation stats) to save housing. But few of them will need that 4BR/3BA Colonial with a backyard designed for a family of five. Realtors, take note.

4) Millennials Can't Get Mortgages

And of course, as I've written about on these pages and elsewhere for months now, Federal housing policy has shifted away from homeownership to rentals. Change! Higher down payments and more rigorous credit requirements are on their way. Can't save $120,000 required to buy that $300,000 house? Well, there are plenty of HUD-sponsored rental programs available for you, young man!

Oh, and you make 10 percent less, and pay more in taxes? Might take a bit longer to save up for that down payment then.

Am I being overly dark on the prospects of the Gen Y? Yeah, probably. Americans are naturally resilient, and maybe we'll see some hope and change on the horizon. But as things stand right now, betting on Millennials to lift housing up out of its doldrums strikes me as the kind of thing that a Vegas bookie would love to give you odds on.

I'm a gambling man, but on this one, I'll pass, thanks.

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Travis Robertson

Sorry, one more point:

I'm not sure this is necessarily the fault of Millennials (not that you're insinuating that). I think you're spot on in your analysis of the current situation. I'm just not sure they should have ever been viewed as the generation that would save housing since that implies a return to something I don't think we can return to.

I do think they should be viewed as a generation that will change the housing market (at least for a time). Like any changes, this brings both huge opportunity and enormous challenges for those in the industry. Those who recognize the changes and shifts will win and (I believe) win big. Those who wish to return to "the good 'ol days of the 2000's" will get pummeled.

Food for thought.

Great, great post!

March 09 2011 at 3:39 PM Report abuse rate up rate down Reply
Travis Robertson

Rob, you make some fantastic points! Really looking forward to meeting you at RETSO in a couple of weeks!

I'm not going to take issue with your projections based on the current state of the economy. Both demographic data and psychographic data on Millennials are pointing to troubling times for the RE industry as it pertains to pricing and you hit on some of the biggies. I also think that current policies and lending practices are not helping things and won't be changing any time soon.

Here's where I would break rank with you: should the economy turn around, I see Boomers cashing out, leaving the workforce, and finally starting their retirements. Xers will move up the ranks and open up positions further down the ladder. Part of the reason you have lower unemployment among Millennials is the extended stay of Boomers in the workforce since most of their nest eggs got wiped out in the market collapse. Now, I'm not saying that's the only reason for the high Millennial unemployment, but it's part of it.

Politically, there appears to be a shift happening toward more fiscally conservative and responsible policies at the government level. At least for now. While I don't see the Gen Y changing their political beliefs too much, getting jobs and paying taxes does tend to change one's perspective on who to vote for.

Trulia recently conducted a survey http://info.trulia.com/index.php?s=43&item=115 that found those age 18-34 have become much more positive on real estate in the last few months versus the other age groups. I think what they want out of a home will be much different moving forward. Unfortunately, fewer Millennials place value on the two-parent household. Also, women are more educated and starting to earn more than men in knowledge based economies.

Single parent households and desire for more urban settings may mean that the face of housing changes.

I see it this way: If saving housing means getting things back to where they were in the early 2000's, I don't see Millennials saving housing. The better question may be, "What impact will Millennials have on housing?" I think we'll see a rise in smaller, urban-style, walkable communities. Lower-income families will move outward toward the suburbs that once signified the American dream post-war. We'll see many cities shift focus to urban renewal (many already are). I also believe Gen Y will comprise the largest segment of the homebuying population in the next 10 or so years.

It's estimated they will make up 50% of the US workforce by 2014. It will only grow from there. Even Xers have had their income remain relatively flat since 2000 (inflation adjusted). It's like the stock market. When things are down, nobody wants to own stock. When things start moving up, everyone wants in. We just have to get the economy kicked back into gear.

People will still buy & sell homes. It's just a matter of what the next generation will want & when they'll want it. Apparently, I only get 3000 chars & I'm out. :)

March 09 2011 at 3:31 PM Report abuse +1 rate up rate down Reply
1 reply to Travis Robertson's comment
@robhahn

This is probably another blogpost, either here on AOL or on one of my other blogs, but... while it's always, always dangerous to do prognosticating, because so many things can change between now and blah blah blah and so forth...

I do agree that Gen-Y will change everything. Every generation does. Well, except maybe my own (Gen-X), although I think we changed music forever... but I digress. But let's assume that even when things return to sanity, at some point, that the studies I cited are correct. Here's what we're looking at then for Gen-Y say ten years out.

- Lower income, as they came into the workforce during the Great Recession
- Lower _male_ income, as this Recession has hit men far harder than women
- 60:40 ratio between college educated women and men (and that's just college)
- Delayed marriage, particularly as men will need to get back on their feet financially before they can start families
- Much harder to get mortgages.

All of the above point to, at a minimum, smaller houses. Later marriage --> fewer children --> smaller families -> smaller houses --> renting for far longer.

Now, the assumption is that this Gen-Y group will prefer the "walkable, core urban" settings. Maybe. But I rather think only the elite Gen-Y will actually be able to afford those, particularly since job creation is happening outside urban cores these days. But here's the thing: the Gen-X also love walkable, urban core cities. And once our kids are grown and sent off to school, I see a huge migration of Gen-Xers who may be in far better financial position to move back into the urban core where they can enjoy fine dining, entertainment, and the like.

Those "lower-income families" you're referring to may be the Millenials, who saved up for 10 years to put 30% down on the $300K ranch out in exurbia, and buying it from the Gen-Xer's and Late Boomers.

Plus, as someone pointed out on Twitter, we forget that so many of these Millenials with their freshly minted college degrees are up to their eyeballs in student loan debt. Extended unemployment + lower income effect from the recession + $100K student loans = renter for life.

We'll see. :) I don't count out the Millenials, because they're Americans. And Americans are a resilient, creative bunch. But boy, do they have an uphill climb.

March 09 2011 at 4:41 PM Report abuse +1 rate up rate down Reply
1 reply to @robhahn's comment
Travis Robertson

Gen X gave us MTV (the good version where they played music) so you're right - they changed music - big time. :)

An uphill climb is a great way of saying it! I can tell we're going to have plenty to talk about at RETSO.

March 09 2011 at 5:10 PM Report abuse rate up rate down
Ravi Manduri

Nice Article

March 09 2011 at 4:56 AM Report abuse rate up rate down Reply