Everybody knows where the kid-buyers are. Aged 18 to 34, they are missing.
“Millennial” is a French word that means “lives with parents.” We all understand: the combination of student loan debt and a tough-entry job market — a gig economy without employer loyalty — and youth is in no position to buy a home or even to form a household.
Once again, “everybody knows” would be wrong.
Youth get older, like everyone else
A new paper by the San Francisco Fed provides unexpected data. It looks farther back and sideways, studying cohorts as they enter the 18-to-34 spectrum and progress through the range.
Its overwhelming conclusion: Youth is not so damaged after all, and the primary cause of the dearth of youth buyers since the Great Recession began was the “pull-forward” of young buyers during the preceding bubble.
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From about 1995 until the show stopped in 2007, the bubble was so big and easy that an unusual number of the 25-to-34 age group bought homes. In the aftermath, we have not witnessed a fatal generational flaw, just the inevitable back side of a bulge.
Certainly many were hurt in the bust, but every year since, another group has moved on from age 17 to 18, refilling the pipeline. The first of these in 2008 is now crossing into the essential 25-to-34 group.
The SF Fed: “The Census Bureau projections imply household formations averaging on the order of 1.4 to 1.5 million per year through 2020. That compares favorably to an average of a little less than 900,000 annually over the past five years.”
That…is huge. Financial markets were nervous last week when sales of new homes reached the 600,000-annual mark. Overheating? Plus another 400,000 apartments was sufficient supply for the old demand, but here comes another half-million each year! A 50-percent jump in train.
They will not all buy, of course. We’re back to a natural level of homeownership, 60 percent to 65 percent — but that’s why we must include multifamily in the equation above.
The policy implications are big. The Fed should not resist a continuing increase in new construction. The outright shortages of housing in hot-economy metro areas will spread.
Too early to tell
It is too early to tell if the youth groups hurt in the Great Recession suffered lasting harm. A foreclosure was an awful thing to go through. Moving home is humiliating, but at least a place to land.
Credit recovers over time — Fannie’s stingy seven-year lockout after foreclosure is expiring now for those who lost homes through 2009, but 2010 through 2012 were awful, too. Many who lost homes were able to sell, but had to give up on a dream. The job market is vastly better in the sense of low unemployment, but job quality and incomes are still at issue.
Much as I look forward to youth returning to markets, I am more deeply pleased by the prospect of healing, and hopes restored.
Lou Barnes is a mortgage broker based in Boulder, Colorado. He can be reached at lbarnes@pmglending.com.
