Lower Home Ownership Rates and the Many Financial Problems of the Young ... The Problem is Real and It May Be Lasting ... And That May Not Be a Bad Thing

Housing sales remain slow, and the situation doesn't look to improve meaningfully anytime soon, especially for first time home buyers.


High unemployment, low savings, burdensome student loans and credit card balances, a growing tendency to defer marriage and starting a family are the principal reasons for the change. And then there's the all important confidence factor resulting in general uncertainty about job prospects and the future economy. Lots of very real stuff for the youngsters among us to worry about, in other words.


Why millennials are hurting the real estate recovery is subtitled '4 reasons young Americans are staying out of the housing market:'


"First-time home buyers haven’t been much help in the housing recovery, but it isn’t because young adults stopped aspiring to become homeowners.


“Though they see a tough road to affording Homeownership, younger renters [those between the ages of 18 and 39] still are very likely to say that it’s in their future plans,” wrote Sarah Shahdad, strategic planning analyst with Fannie Mae, commenting recently on Fannie Mae’s National Housing Survey.


“The vast majority still plan to own someday; about half plan to buy a home the next time they move.”


It’s just that, right now, economic realities and life decisions are getting in the way. And those obstacles have repercussions for the broader housing market, because the absence of young buyers is one big reason why the housing recovery hasn’t been stronger.


Lack of savings, less-than-perfect credit and stifling loads of student-loan debt are continuing to hold young adults back from Homeownership, Shahdad and others say. Societal trends also play a role in why they’re not buying, as people are waiting longer to get married and have children—life events that tend to spur home purchases. . . .                                


“The [25 to 35] age cohort…probably has had the hardest time recovering from the Great Recession,” said Rick Sharga, executive vice president of Auction.com, an online real estate marketplace.... While some industry watchers have suggested a shift in attitudes away from Homeownership, . . . it’s too soon to know whether people truly have a waning interest in owning homes. But one thing’s for sure: Young people have plenty of hurdles to becoming homeowners....                                      


The following are key reasons first-time buyers are sitting on the sidelines—for now.
                                        

Unemployment and low savings

The unemployment rate for 18-to-29-year-olds was 9.1% in April, which rises to 15.5% if you include those who have given up looking for work . . . .


Forget that without a job it’s just about impossible to get a mortgage. (It’s also hard to rent: Twenty-nine percent of adults younger than 35 live with their parents, according to Gallup poll results released earlier this year.) A slow start to earnings also means a slow start to saving.


“The majority of younger renters report having insufficient assets to cover a 5% down payment plus closing costs on a typical starter home,” Shahdad wrote.
                                        

Low credit scores

Millennials also have the lowest credit scores, according to a report by Experian.


Their average . . . credit score for millennials is 628, compared with 735 for the Greatest Generation, 700 for baby boomers and 653 for Generation X. . . . Young adults tend to have a high utilization rate on their credit cards, an average debt of $23,332 and high incidences of late  payments....
                                       


Student debt


People with student loan debt also have more education, which should pay off in higher incomes in the future and make them great mortgage applicants, said Trulia’s Kolko. But when they’re first starting out, having more student loan debt makes it harder to get a mortgage, and paying loan installments each month makes it more difficult to save for a down payment.


In 2012, 1.3 million students who graduated from four-year colleges (or 71%) had student loan debt, up from 1.1 million in 2008 and 900,000 in 2004 . . . . Graduating seniors with student loans had average debt levels of $29,400 in 2012, up 25% from $23,450 in 2008. . . .                                


Delaying marriage, family


The median age of first marriage is about 27 for women and 29 for men, according to the U.S. Census Bureau. In 1950, it was about 21 for women and 24 for men. . . . 


“Because people are marrying and having kids at an older age, many young people might spend more years renting apartments and living in cities, before moving to the suburbs,” Kolko said."


Summing Up


The "American dream" of home ownership has turned into a nightmare for many Americans in recent years.


And the idea that housing prices have nowhere to go but up has turned out to be a piece of fiction as well.


So now young people are coming to grips with the burdens of excessive debt and the employment issues associated with a slow growth economy too.


Our millennials are wising up, in other words, and while in the long term that's good for America, in the interim period of adjustment it's not a good omen for employment, the economy or the housing industry.


That's my take.


Thanks. Bob.