Something much bigger than the recession is reshaping the housing industry. New data from Pew Research confirms our suspicions that the Echo Boom won’t be heard for at least another decade.
Our readers know we’ve been talking demographics for years. Peter Drucker noted that your customer’s age is the easiest trackable indicator of your future sales. So it’s with some wonder that five years after the housing industry fell off the wall, all of the king’s horses and men are still trying to put Humpty the “First-Time-Home-Owner” Dumpty back on the wall again. It’s going to take much more than “affordability” and low interest rates to compensate for what some new data from Pew Research indicates is a much bigger sea change than mere market cycles. Here’s why.
For nearly three years we have argued here and here and here that Gen Y isn’t at all like its parents when it comes to home ownership. Unlike married-with-children Boomers who bought their first homes in their early twenties, Gen Y hasn’t entered adulthood along the same curve. They have remained in school years longer than mom and dad did, and were doing so long before the current jobs scarcity. They have been putting off marriage a little longer, on average, every decade since the 1960s. They delayed raising children until their thirties, even forties. As for purchasing power, we’ve been talking about soaring Gen Y debt accumulation (driven by college tuition) for years.
All of which adds up to a different “repair formula” for housing – one in which it might not matter how affordable homes become, if credit worthiness, motivation and need remain weak.
As for the “dream” of home ownership, well, sure, Gen Y probably dreams about it. I dream of owning a private island someday, too. Study after study can tell us what people dream or “believe” in it. But it’s new data from Pew that tells us that, at least right now, they aren’t chasing that dream – because they’re perfectly happy living at home with the ‘rents.
The study – The Boomerang Generation: Feeling Ok about living with Mom and Dad – challenges an important myth that many in the housing industry have been counting on. The supposition is that, once the job market picks up, the Echo Boomers will return to the housing market en masse. It’s a claim that looks good on a bar chart, but nobody bothered to ask the Echo Boomers if they agreed. Until now, thanks to Pew Research. What they found is that the housing trends – especially preferences – of Gen Y don’t reflect the same patterns of their parents, who formed the basis of the massive “first time home buyer” population throughout the 1960s and 1970s. In fact:
“… 40% of 18- to 24-year-olds currently live with their parents, and the vast majority of them say they did not move back home because of economic conditions (in fact many of them may have never moved out in the first place).”
Which means that nearly half of Gen Y’ers aren’t delaying housing specifically because of economic conditions. The study indicates that only about 1/3rd of Gen Y’ers live with parents “temporarily” because of the economy. It found no major differences between genders, social, ethnic or household income levels, either.
“Parents with annual household incomes of $100,000 or more are just as likely as those with incomes under $30,000 to say their adult child has moved back home because of economic conditions.”
Apparently even rich parents aren’t handing out so many down-payment gifts as they once did.
But the real story isn’t about the money, but the emotional desire to move out of the nest. Whereas post-war Boomers were strongly encouraged to become start families and become self-supporting by their twenties, and Gen X’ers were (voluntarily) out the door as early as possible, Echo Boomers don’t see a problem with living at home until significantly older. Says Pew Research:
“Fully 68% of young adults ages 18 to 34 who are living with their parents or moved back in temporarily because of economic conditions say they are very satisfied with their family life. This compares with 73% of young adults who are not living with their parents (a statistically insignificant difference). Similarly, 44% of young adults who live with their parents say they are very satisfied with their present housing situation. A similar proportion (49%) of young adults who live on their own say the same.” [emphasis added]
The Pew study does note that people who moved back in for economic reasons were slightly less happy about it. But let’s not let the exceptions deny the rule. In fact, Pew notes that the rise of multi-generational households has been building for quite some time, rising to the highest levels (51 million households) since 1980. There have been plenty of economic booms and busts in the last thirty years to blame the current recession for this phenomenon alone.
Still, couldn’t it be argued that these happy-at-home-millennials are saving-up for their eventual migration? It’s hard to tell, but considering many are paying household expenses and rent (to their parents) they are arguably in the same situation as if they were paying bills to a landlord (even if they had roommates) outside of the home. Again, Pew puts numbers to this:
“Young adults who live with their parents contribute to the household in various ways. Nearly all of the 18- to 34-year-olds surveyed (96%) say that they do chores around their parents’ house. And fully 75% say they contribute to household expenses such as groceries or utility bills. More than a third (35%) pay rent to their parents.”
All of which means that something much deeper than recession hesitation is at work when it comes to the first time buyers for next decade. Even as some parts of the housing market experience an early Spring market, much of this activity stems from investors and luxury buyers, not first-timers seeking classic starter homes, or evan “fixer uppers” picked from the vast affordable foreclosure inventory.
It simply seems that they simply not looking because they are perfectly happy where they are.
The housing industry loves to note that most housing purchases are emotional. During booms, buyers emotionally overpay for their dream homes. During busts, sellers emotionally resist setting the right price. Well, if emotions are more powerful than intellect, then perhaps brokers need to consider what it will take for happy-to-stay-home twenty-somethings to leap from the nest – and into the housing market – before the end of the intellectually best-time-to-buy is replaced by a decade of hyperinflation.
But that, of course, is a topic for another day.