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U.S. News & World Report: 'Nuanced View' Needed When It Comes to Millennials

July 24, 2014

As published in U.S. News & World Report.

The homeownership rate among millennials is the lowest it’s been since the Census Bureau began tabulating the figures by age in 1982, and many worry about the lasting drag the group might have on the housing market. At the same time, there’s good reason to believe that millennials, those ages 18 to 34, aren't that different from other generations and will pick up their purchasing before too long – they just entered adulthood at a really unfortunate time.

Low homeownership, along with delayed marriage and high student debt, raise "numerous questions about how prolonged [millennials'] delay into these conventional indicators of adulthood might be,” Jason Furman, chairman of the White House Council of Economic Advisers, said at a housing conference in the nation's capital on Thursday. But Furman said a “more nuanced view” may be needed when understanding the impact of millennials’ behavior on the housing market.

Some say the decline in millennial-headed household formation is a measurement error attributable to college attendance. “But we don’t see it that way,” Furman said, referring to the high number of young adults still living with their parents.

Rather, the decline is cyclical and as the economy improves, Furman said, millennial headship rates will improve, which could translate into eventual ownership. And the investment in higher education, even if it means finances are strapped now, leads to higher wages that boost future spending power.

“It is a very good deal and it expands your options going forward,” he said.

Aside from weakened job market prospects, tighter credit thresholds after the Great Recession can explain about 40 percent of the decline in first-time homebuying in recent years relative to the early 2000s, Furman said, citing Federal Reserve research. At the same time, there’s been a net easing of standards when it comes to commercial real estate loans for apartment buildings.

It may be lifestyle choices, rather than economics, driving young Americans’ homeownership decisions, said Tom Bozzuto, chairman and CEO of The Bozzuto Group, a real estate development company. Lifestyle also plays into how they rent, opting for smaller spaces in exchange for a preferred location and desired amenities.

“This generation has never shared a bedroom with anyone,” he said at the housing conference. “When they turn the faucet on, they want to feel what they feel at their mother’s house.”

Mollie Carmichael, principal at John Burns Real Estate Consulting, similarly said “life has a huge impact” on whether young Americans opt to rent or buy. Renting in dense urban areas, for example, underscores their desire to be close to restaurants, bars and shopping.

Homeownership is one of the biggest ways people build wealth, and Dowell Myers, a professor in the Sol Price School of Public Policy at the University of Southern California, links that to young adults’ coupling off or marrying. Just 22 percent of millennials were married in 2010 compared with about 40 percent of baby boomers who were married at their age, according to figures from the Pew Research Center, which used the age range of 18 to 29 to define the group.

“When people have earnings, they have concerns [such as], 'What do I do with my money?' If you have a partner, then [a home] is a shared project you take on,” he said. “It’s a physical manifestation of your relationship.”

New research from the National Association of Realtors suggests that improved job market conditions and strong migration patterns of young adults are positioning some metropolitan areas to experience increases in millennial homebuying soon. Among the top cities that may see a surge are Austin and Dallas in Texas, as well as Denver and Des Moines, Iowa.

“Limited job prospects, student debt and flat wage growth have combined with tight credit conditions and low inventory to price millennials out of some of the top cities such as New York and San Francisco,” NAR chief economist Lawrence Yun said in a statement. “However, NAR research finds that there are other metro areas millennials are moving to where job growth is strong and homeownership is more attainable. ”