Why Aren’t Millennials Saving the Housing Market?
- Joshua M Brown
- December 10th, 2012
Do you know any millennials? You do?
Then you know how adorable they are with their Buzzfeed and their limitless 90′s nostalgia (Look! a picture of Coolio and Shannen Doherty! At a rave!). But you also probably know how uninterested they are in the prospect of becoming their Boomer parents anytime soon.
The ConvergEx Group market strategists looks at why the millennials have been a non-factor in the housing market up until this point and why that might be the case:
With about 3.3 million millennials at about buying age and income, almost 1.6 million homes have the potential to be purchased. With new home sales currently at about 370k/month and exiting at just below 5 million/year, Millennial home purchases could help make the housing market much stronger with numbers closer to the 2006 highs (at about 1.2 million and 7 million, for new and existing respectively).
But don’t expect a surge in home sales from them just yet: there are a few factors holding them back from taking that first step.
* The average 4-year college grad is saddled with student loan debt to the tune of $26,000. A quarter of them owe more than $50,000, according to FinAid.org. The typical payment on that debt is about $300/month (for a 10-year repayment program), or $3,600/year, in addition to the ~$31,000 we spend on basic needs, clothing, healthcare, and entertainment (according to the BLS’s Consumer Expenditure Survey from 2011). After taxes, that leaves us only about $5,000 for savings. Hardly what’s needed for the down-payment on your average $180,000 home in the US. And if federal regulators approve the new Qualified Residential Mortgage (QRM) rules proposed for the beginning of 2013 – which, very simply, could impose some stricter lending standards – even more of this group could be locked out of the housing market for much longer.
* They also aren’t in a rush to start a family anytime soon. The average female now gets married at 26, and males at 28; in 1980, it was 22 and 25.But according to the US Department of Health & Human Services, only 32.8% of 4-year degree holders aged 25-29 are currently married; just over half (50.9%) of those at the older end of the Millennial generation (30-34) have tied the knot. The good news on this front is that there’s a 70% change that college grad females will be married by 30, and a 58% of the same for men. By 35, those numbers increase to 84% and 73% – presumably because men tend to marry at older ages. Still, that puts household formation (and therefore home buying) back by a few years.
* The first-time home buyer is also getting older. Based on research by the National Association of Realtors, the median age of first-time buyers was 31 and their median income was $62,400, slightly above the average mark for older Millennials. In the 1970s, first time buyers were 25, though unfortunately their incomes are not detailed.
* Finally, the Millennial generation is more distrustful of the housing market after the bubble burst in 2006. Unlike some of their parents, this generation is less likely to see a home as a trustworthy long-term investment, and perhaps more as a liability. So they’re in no rush to go into debt for something that might not pay them back. Until market conditions improve across the board, this sentiment is unlikely to change.
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The Reformed Broker is a blog about financial markets and the economy. Joshua Brown is a New York City-based investment advisor for high net worth individuals, charitable foundations, retirement plans and corporations... More.