The Key to Our Economic Recovery is in the Hands and Minds of Millennials

Millennials are changing trends and historical benchmarks because they may very well think that the economy for the past 6-years is a normal economy. They have never experienced a vibrant economy.

Millennials are not buying homes because they want the flexibility and mobility to live where they want and change their circumstances when they want. They will experience the worst when housing prices continue their upward climb mirroring rents but will they really care?

Regardless of their reaction to our economic conditions, where will Millennials live?

Are we seeing a “new norm” being established in the housing industry with housing starts below 1,500,000 as being the acceptable benchmark for meeting our housing needs?

                                                                                     Historical                  Estimated 2014

Household formations                                                      1.31                            0.90   
Net Removal of housing units                                          0.26                            0.26

Required ANNUAL number of housing starts        1,570,000                   1,160,000

 

On paper, there is a pent-up demand for housing.

In reality, Millennials are turning to their parents, renting, or living with multiple roommates. Millennials are giving market researchers a false sense of reality due to the fact that Millennials are not in the market to buy a home.

What we think we know is no longer reliable. Unfortunately,  the lack of home purchases has a ripple effect throughout the entire economy.

Also, many Millennials are so deep in debt and without a job, they are delaying marriage.

Under 30 years of age, the average college debt carried by borrowers in this age group is $21,000 as of January 2013. Source: NYFed

If the Millennials are sitting up in the bleachers, let’s turn to the” baby boomers” – where are they and why are they not selling and buying?

Unfortunately, “baby boomers” are wedged between aging parents and their grown children are still living at home.

“Baby Boomers” are now just recouping the equity in their home lost during the great recession. Most Baby Boomers will work longer to be able to afford retirement as they take care of their parents and children.

As Millennials continue to put stress on “baby boomers” for financial assistance, “baby boomers” will be forced to age in-place. By aging in place, baby boomers are also changing the dynamics of the housing market.

Baby Boomers and Millennials are the prime housing market segments representing over 50% of the population. If these market segments are changing their view on housing, our economy will continue to flounder for years to come. Of course boomers and millennials will be buying and selling homes but the majority will not. 

Family formations are well below historical levels.

The ability to get ahead is not so clear anymore.

Even with two wage earners, Millennials will have a difficult time purchasing a home (even if they wanted to) because of college loans, bad spending habits and tight credit.

Without a question, the great recession has changed our society.

Historically, new households have mirrored the population growth trend line but the significant departure has been over the past 4-yrs. New family formations are typically postponed during recessions but the "great recession" has affected the core of our society. With a lethargic economy and a lack luster economic growth forecast, the housing market continues to change in its structure.  

Stats that may give us some insight into the minds of the Millennials according to the Pew Research Center:

More than a third of American Millennials are living at home with their parents, (currently about 21.6 million are living AT HOME!)

In 2013 just 63% of young adults in that age group were employed, down from 70 percent in 2007

Between 2005 and 2011, 25--34-year-olds experienced the largest drop in homeownership of any age group

Only 36.3 percent of those younger than age 35 owned a home at the end of 2012, down from a high of 43 percent in 2006

As of March 2013, only about 34% of Millennials  headed up their own household. 

The absence of any increase in household formations among Millennials is significant because it contributes to lackluster apartment and housing demand as well as the demand for household furnishings, etc. that goes along with independent living. Housing typically leads the economy out of recession but not so much now.

Also, Millennials are not working. 

Unemployment Rates by Age Groups:

Age Range                May 2014*     Year/Year Change

24-35                          6.7%               -0.5

35-44                          5.1%               -1.1

45-54                          4.6%               -1.4

55+                             4.6%               -0.7

* I believe this rate is low because many workers are no longer in the workforce or maybe many Millennials have never entered the workforce!

Percentages are a way to paint a positive or negative picture but not a true way to show trends. After all, if you have a penny and someone gave you another penny, you would have a 100% profit but still couldn’t buy anything.  But the fact remains, Millennials have not started their careers and the great recession and aftermath has and will continue to affect Millennials. And in return, the economy will continue to suffer including housing because of their generational influence. After all, do Millennials:

            Watch the news on TV?                                         I don’t think so!

            Read a newspaper?                                              I don’t think so!

            Have a home phone?                                             I don’t think so!

            Care about health insurance?                               I don’t think so!

            Talk politics?                                                            I don’t think so!

            Go to church?                                                          I don’t think so!

            Shop at a mall?                                                       I don’t think so!

            Know how to mow grass?                                      I don’t think so!

           

Housing’s Next Phase –

Millennials see the effect the great recession has had on their parents and friends. What will unleash this age group to embrace housing? By the time we reach a positive economic trend Millennials will experience another downturn. Fear will take hold more than optimism and Millennials will not be buying because:

Fear of losing their job and/or the lack of job security

           Fear of the buying process – not understanding how the system works

          Fear of their ability to make monthly payments

          Fear of being “house poor”

         Fear of qualifying and credit scores

And why wouldn’t the above list be applicable for Baby Boomers? 

Will the majority of the households in these generations even have the cash for a down payment or closing costs?

The problem is housing no longer drives the economy.

Millennials have created new norms and will have a lasting impression on housing.

What we knew as proven no longer holds true. The above is not an absolute because the housing industry will continue to thrive. Just not at the levels we expect.