The report that got us started on this tangent this morning: Home prices in 20 U.S. metro areas are now as low as they were nine years ago, according to the just released Case-Shiller Home Price Index.
In other words, housing prices are back where they were when the space shuttle Columbia blew up and Washington was about to foment the doctrine of “preventive war” in Iraq.
(The index’s year-over-year decline works out to 3.8%. It would likely have been worse if the weather in January had felt, well, more like January.)
Alas, the Case-Shiller is but one of several limp housing numbers that have been released in recent days.
“From home builder sentiment to housing starts,” writes Diana Olick, one of the more sensible observers of the housing market in the mainstream press, “to home builder earnings right through to sales of newly built homes, there was not one hopeful headline in any of it…”
That Ms. Olick is employed by CNBC is one of those freakish facts we can chalk up only to… who knows, sunspot activity.
A year ago, in these pages, we covered a study from Wells Fargo gushed that “there are 51.5 million potential first-time homebuyers born between 1979 and 1991. Roughly 6 million more of these Millennials are reaching the prime home buying age than baby boomers did in 1977.”
The “Millennial” generation – age 30 and under – concluded the Housing Wire[link], will ride to the housing market’s rescue… restoring the National Association of Realtors (NAR) version of the American Dream.
And yet, one year on the opposite appears to be happening.
“Homeownership rates for young adults have plunged back down to near-1990 lows,” writes the aforementioned Neil Howe, “despite record-low interest rates and very attractive prices for a new home.”
What’s more, first-time buyers are disappearing: From 2009-11, only 9% of people age 29-34 got a first mortgage. A decade earlier, it was 17%.
The reasons are legion: According to a Chicago Fed study, several factors are at work: Young couples are waiting longer to have kids… thus the urgency to buy a home is less.
They’re also at what the study delicately calls “heightened income risk”… or what you and I would call “unable to find a dang job.” Unemployment among people 25 and younger is double that for people older than 25.
Too, their inflation-adjusted wages are lower than a decade ago.
All of these downward pressures on the “Y me?” generation arrive at a bad time.
“For someone in his or her 30s,” Mr. Howe continues, citing a separate New York Fed study, “the average college loan balance is now $28,500, and balances over $50,000 are common.
“Debt at this level stifles consumer spending and can render many young people ineligible for home mortgages, no matter how low the interest rate.”
Conclusion: If you’re expecting a Millenial to come and prop up your “investment” in a primary residence… well, dude, he or she might be around the corner looking for a cheap rental instead.
Addison Wigginfor The Daily Reckoning
Addison Wiggin is the executive publisher of Agora Financial, LLC, a fiercely independent economic forecasting and financial research firm. He's the creator and editorial director of Agora Financial's daily 5 Min. Forecast and editorial director of The Daily Reckoning. Wiggin is the founder of Agora Entertainment, executive producer and co-writer of I.O.U.S.A., which was nominated for the Grand Jury Prize at the 2008 Sundance Film Festival, the 2009 Critics Choice Award for Best Documentary Feature, and was also shortlisted for a 2009 Academy Award. He is the author of the companion book of the film I.O.U.S.A.and his second edition of The Demise of the Dollar, and Why it's Even Better for Your Investments was just fully revised and updated. Wiggin is a three-time New York Times best-selling author whose work has been recognized by The New York Times Magazine, The Economist, Worth, The New York Times, The Washington Post as well as major network news programs. He also co-authored international bestsellers Financial Reckoning Day and Empire of Debt with Bill Bonner.
Generation Y would love to buy a house but we need a stable vibrant economy. The only way that’s going to happen is if the government cuts spending (entitlements), balances the budget and stops intervening in the private sector. Generation Y’s real story pivots around the insane government they have inherited. Overcoming student loan challenges are easy compared with reforming the system that screwed us in the first place.
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