Generation Y: Dragging Down the Housing Market?
First came the accusations that young adults -- those self-esteem-inflated, coddled slackers -- were a contributing factor to the housing bubble. Why? Because Gen Y was too busy prioritizing trips to Europe or avoiding "real life" by going to grad school than "doing the right thing": getting a job, and paying the mortgage. As for those rare Gen Y rascals with homes -- let's point to them as morally deficient examples of people who walk away from mortgages!
Let's not stop there, though. Let's blame all those bratty Gen Y members who can't get it together enough to even have a mortgage -- yes, you, dear renter! Don't you realize that if you're not buying an entry-level house, you are screwing it up for everyone else? If you're not buying we (the older folks) can't sell our homes and move into larger (or smaller) ones?
Message from Gen Y: Well, old-timers, we have taken two seconds to consider home ownership. What we've concluded is that, best case, it will take the majority of us 10 years or more to buy a house (if we ever decide to buy!) ... and, our preferences are shaping both the rental market and the buying market, so ... get used to it.
If you care to listen, here's how:
First, get a handle on our numbers. Today, Gen Y is close to outpacing baby boomers as the largest demographic in the country. Gen Y members are 74.8 million strong and the infamous boomers are holding at 74.6 million.
It also helps to understand that typical wages for Gen Y are a fraction of what the average baby boomer made relative to cost of living. A typical baby boomer making $48,000 a year could buy a house and support a family. By contrast, a typical member of Gen Y would need to make $148,000 a year to afford an entry-level home in most cities.
Consequently, most members of Gen Y won't have the opportunity to purchase a first home until they are in their mid-30s. This puts real estate spending on hold for individuals as well as the market at large.
This post in the San Francisco Business Times points out that Gen Y's tastes aren't so different in that, generally speaking, we enjoy walk-in closets, close proximity to transit, and retail amenities near our rentals. Presumably, we'd look for similar things in a house, too.
The problem? There are fewer rental and real estate locations available that offer these amenities than demand warrants. That's because development has centered on the suburbs since the boomers were children. Members of Gen Y want denser, "downtown" living options -- and the market is hot to try and create them.
But even with more desirable locations on the market, would it even matter to most of us? Gen Y views jobs as fleeting -- we don't have any delusions about getting gold watches for a lifetime at the same company. So, more members of Gen Y choose where we live based on lifestyle versus relocating for a specific job or company headquarters.
Renting, therefore, looks pretty good to us. Boomers, you might want to try selling your homes to a member of Gen X, instead.