Could Generation Y Lift the Housing Market?

generation yA few years ago, the real estate community was gripped with Millennial Fever: the idea that the Millennials (or Generation Y), born between say 1983 and 2003 (according to anyhow) and representing the largest demographic group in the United States after the Baby Boomer generation, would be the single most important thing to housing. Quite a few people, even now, believe that Gen Y would transform the nation by the sheer weight of their numbers.

Naturally, a population that large will have enormous impact on home purchases, no? Back in 2008, a couple of Harvard men (George Masnick and Eric Belsky) showed that by 2010, the Millenials (now aged between 25 and 34) would constitute 8 million new homebuyers, by far the largest and most important segment.

Well, 2010 has come and gone, and the National Association of Realtors (NAR) has released an interesting new study, in which it concludes, "The share of adults under age 35 living at home, especially among those aged 25 to 34, is at the highest level since 1981."

And as we all know, the housing market is not exactly the picture of vibrant health.

But there are still those optimistic sunny people who believe that surely, this enormous group, some 80 million strong, would get married, have babies, and therefore, buy houses. They're not wrong. Some will, because homebuying is driven by family formation more than just about any other factor.

Yet, I don't think that counting on the Millennials to save the housing market is such a good bet. Here are four reasons why:

1) Millennials Got No Money

On my personal blog, I mused openly on the Millennials back in 2010. As referenced there,
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Robert Samuelson of the Washington Post noted that 37 percent of those aged 18 to 35 were unemployed, the "highest in more than three decades," and that only 41 percent have full-time jobs, down from 50 percent in 2006. It isn't exactly a secret that this economy somehow seems to manage recovery without any jobs, and the younger, less-experienced get hit the hardest. No wonder more Millennials live at home with mom and dad than at any time in 30 years.

But it gets worse! According to a Yale economist, Lisa Kahn, the impact of of recessions on lifelong earnings is extremely bad and long-lasting. Each 1 percent of unemployment leads to 7 percent drop in income for new college graduates, but even seventeen years later, those college grads who entered the workforce in a recession earned 10% less on average than people who did not face a recession. Uh-oh, Millennials.

2) Millenials Will Be the Chump Generation

Huge millions of those 80 million Gen-Y'ers celebrated the election of Barack Obama in 2008. They worked hard for Obama, for Hope and Change. Three years later, the country is some $15 trillion in debt, and adding more to it daily, and we'll have to see where that ends up. When the Baby Boomers retires and start collecting Social Security and needing Medicare, just who do you imagine will be footing that bill?

Sure, Generation X will have to cough up a bunch of dough, but we're tiny in number compared to the 80 million (at least, the 41 percent of those 80 million who have full-time jobs) Millennials, who by the way, are making 10 percent less on average over the next couple of decades. If you think their tax burdens are going to be less during their prime homebuying and family formation years....You have the kind of faith that sustains prisoners in Chinese jails.

Less income + higher tax burdens = Generation Chump. Thanks for paying, kids!

3) Millennial Family Formation Will Be Lower

Family formation is the key to driving new homeownership. So with 80 million of them out there, there oughta be some serious family formation going on, right? Maybe. I'm not so sanguine.

You see, the gender gap amongst Millennials in education and employment is something we have never seen before in this country... or any country. Some universities today have two male students for every three female (which makes for interesting social scene on Friday nights). Women earn more bachelor's degrees, more advanced degrees, even more doctorates then men do. Women are now the majority of the workforce. Women are taking over the kinds of jobs that were male dominated, like finance and law.

Maybe Millennials will be different from every other generation that came before it in every single country in the world, but for the most part, female lawyers do not marry (that is, "family formation") male janitors. Smart, college-educated, employed women do not marry the barista from Starbucks. Date? Sure. Fun and games? Of course. Family formation? I seriously, seriously doubt it.

Maybe it will be up to the Millennial single women (and there are going to be a lot of you, judging by college graduation stats) to save housing. But few of them will need that 4BR/3BA Colonial with a backyard designed for a family of five. Realtors, take note.

4) Millennials Can't Get Mortgages

And of course, as I've written about on these pages and elsewhere for months now, Federal housing policy has shifted away from homeownership to rentals. Change! Higher down payments and more rigorous credit requirements are on their way. Can't save $120,000 required to buy that $300,000 house? Well, there are plenty of HUD-sponsored rental programs available for you, young man!

Oh, and you make 10 percent less, and pay more in taxes? Might take a bit longer to save up for that down payment then.

Am I being overly dark on the prospects of the Gen Y? Yeah, probably. Americans are naturally resilient, and maybe we'll see some hope and change on the horizon. But as things stand right now, betting on Millennials to lift housing up out of its doldrums strikes me as the kind of thing that a Vegas bookie would love to give you odds on.

I'm a gambling man, but on this one, I'll pass, thanks.

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