Younger Americans’ Housing Problems Could Mean Opportunity
They’re calling them the “failure-to-launch” generation. Household formation for younger Americans is in trouble. While there are reports and economic studies touting an improving economy and rising home prices, a record number of younger Americans are living with older family members.
The most accepted reasons for this situation is that younger Americans are saddled with debt and weak incomes. While they’re piling on college debt, they’re not finding the high paying jobs of the past. Income increases aren’t happening either. New household formation rates have plunged:
• 2000 – 2006: 1.35 million per year.
• 2007 – 2011: 550,000 per year.
• 2012: Around 1 million.
The reasons for the massive drop from 2007 were pretty clear. The housing and mortgage crash brought about a complete withdrawal of all types of creative financing the young were using to buy homes. Maximum leverage loan products simply disappeared.
The improvement in 2012 was mostly due to really low mortgage rates and a decent inventory of very low-priced homes. Those who could qualify for a loan were encouraged to buy, as the low mortgage rates allowed them to buy more home than they could previously afford in mortgage payments.
Unfortunately, inventories have stayed low and the massive buying of cash investors has created upward pressure on prices that appears to be great for the market. However, these prices are in most cases way above what younger Americans can afford, and mortgage rates have been rising as well. In the 1980s, around 36 percent of young Americans lived with older family members. That number is now at 46 percent.
This dramatic rise has come about during what is touted as a “housing market recovery.” All of the normal factors that contribute to new household formation still apply. However, a new reason for the dismal performance during this recovery period is that both starting and ongoing incomes of younger Americans are suffering. They simply aren’t making enough money to buy into a hot market with low inventory and rising prices.
Aggravating the situation is rising rents. Currently 11.3 million Americans pay more than half their income for rent, up 28 percent since 2007. Younger Americans simply can’t afford to buy or rent in many case, so they live at home with their relatives. Real estate investors can probably find some opportunity in this situation, but it’s probably going to be about smaller spaces near jobs with affordable rents. If they don’t exist, maybe conversions or new construction is the answer.
They’re calling them the “failure-to-launch” generation. Household formation for younger Americans is in trouble. While there are reports and economic studies touting an improving economy and rising home prices, a record number of younger Americans are living with older family members.
The most accepted reasons for this situation is that younger Americans are saddled with debt and weak incomes. While they’re piling on college debt, they’re not finding the high paying jobs of the past. Income increases aren’t happening either. New household formation rates have plunged:
• 2000 – 2006: 1.35 million per year.
• 2007 – 2011: 550,000 per year.
• 2012: Around 1 million.
The reasons for the massive drop from 2007 were pretty clear. The housing and mortgage crash brought about a complete withdrawal of all types of creative financing the young were using to buy homes. Maximum leverage loan products simply disappeared.
The improvement in 2012 was mostly due to really low mortgage rates and a decent inventory of very low-priced homes. Those who could qualify for a loan were encouraged to buy, as the low mortgage rates allowed them to buy more home than they could previously afford in mortgage payments.
Unfortunately, inventories have stayed low and the massive buying of cash investors has created upward pressure on prices that appears to be great for the market. However, these prices are in most cases way above what younger Americans can afford, and mortgage rates have been rising as well. In the 1980s, around 36 percent of young Americans lived with older family members. That number is now at 46 percent.
This dramatic rise has come about during what is touted as a “housing market recovery.” All of the normal factors that contribute to new household formation still apply. However, a new reason for the dismal performance during this recovery period is that both starting and ongoing incomes of younger Americans are suffering. They simply aren’t making enough money to buy into a hot market with low inventory and rising prices.
Aggravating the situation is rising rents. Currently 11.3 million Americans pay more than half their income for rent, up 28 percent since 2007. Younger Americans simply can’t afford to buy or rent in many case, so they live at home with their relatives. Real estate investors can probably find some opportunity in this situation, but it’s probably going to be about smaller spaces near jobs with affordable rents. If they don’t exist, maybe conversions or new construction is the answer.