College graduates in 2011 will leave school with record levels of debt, raising questions about the future of the housing market’s traditional supply of first time home buyers. Smart real estate agents will be prepared to help them anyway.
Solving the housing industry’s problems won’t be done by simply absorbing excess inventory or arresting price declines (re-inflating prices is even more absurd). It’s also fairly clear that lowering interest rates is having little or no effect on creating demand during the recession. But beyond the supply and demand challenges, new emerging trends in credit and debt, especially amongst younger generations, are possibly positioning the next generation of first time home buyers out of the market.
Consider the following challenges that consumers of “first time buyer” age face these days:
- Unemployment for 16-24 year olds stands between 18 and 20%
- College graduates under 25 face 9% unemployment; double what their 25-and-older rivals face
- Consumer prices (gas and food) rose to a 2 and a half year high of 3.2% inflation in April 2011
- The college class of 2011 will graduate with an average per-student debt of $22,900
Between 1987 and 2009 US college tuition and fees increased by a staggering 326% (6.8% annually), while medical costs went up by “only” 186% (4.9% annually) and house prices by 135% (4.0% annually).
- Agents who have heretofore pooh-poohed the idea of working with renters should try it, starting by going back to class and getting up-to-speed on rental market operations.
- Online marketing departments need to stop positioning rental services behind the curtains, and position it as front-and-center as search tools for purchases and open houses.
- Multi-family property specialists should be building up their sphere of influence (and their inventory) especially using social networks where younger renters can hear their message.
- Brokers and trade associations should consider ways to welcome renters, rather than always attempting to convert them into buyers. Some positive messaging is needed on what, for some, will be the only realistic housing option for a while.
- Builders should rethink their land-use and urban renovation options: Even if first time buyers qualify for a mortgage, it’s going to be on a much smaller property than recent McMansion decades. We might even see a new demand for multi-family units where rental income can help some younger buyers qualify for mortgages.