Who cares if Millennials ever buy homes? Baby Boomers
Baby Boomers need Millennial buyers to purchase overpriced homes to fund the Boomers’ retirements.
Have you noticed all the financial media stories about why Millennials aren’t buying homes? Who cares whether or not Millennials buy homes? Shouldn’t the Millennials themselves be the only ones who care whether they rent or whether they own? Shouldn’t the choice be one for them to make in consideration of their own lifestyles, needs, and goals? Who benefits from a concerted effort to cajole Millennials into buying houses?
Besides Millennials themselves, only two major groups of people care about Millennial homebuying: real estate industry professionals, and Baby Boomer homeowners. People in the real estate industry that make money on transactions — homebuilders, lenders, realtors — they want Millennials to buy homes for obvious, self-serving reasons. The banks needed to reflate the housing bubble to restore collateral backing to their bad loans as a matter of solvency and survival. Though repugnant, this behavior is at least understandable.
The often overlooked group of interested parties is the baby boomers who want to sell their homes to fund their retirement. The baby boomers needed to reflate the housing bubble to restore the lost equity they planned to live on in retirement. In other words, Millennials are being asked to support the Baby Boomers’ entitlements; so far, they just say “no.”
Once they had the illusion of wealth created by the false price signals of the bubble, many Baby Boomers changed their behavior; many Boomers slowed or stopped saving in other ways, many Boomers made bad consumptive purchases disguised as investments, and many other Boomers simply pissed away their illusory wealth on consumption through mortgage equity withdrawal. As a result, Baby Boomers are overly dependent upon the resale values of their homes to fund the entitlements they’ve become accustomed to.
The powers-that-be catered to the Boomer’s wishes. If you think about it, 4% mortgage rates are a direct transfer of housing wealth from Millennials to Boomers.
Consider the following: the chart below shows the monthly cost of ownership from 1988 to 2015, and from 1989-1991 and again from 2011-2013, the monthly cost of ownership was approximately $1,850. Twenty-four years apart, the cost of ownership on a monthly basis was unchanged, yet house prices were nearly double. Why is that? Because in 1989, mortgage interest rates were north of 10%, and in 2012, they were 3.5%. Every penny of appreciation from 1989 to 2012 was a direct result of declining interest rates.
The housing bubble created a great deal of false wealth, and baby boomers were the recipients of an artificial boost in home prices due to 25 years of falling mortgage interest rates. At least 30% of the value of their homes was created totally by increased borrowing power of subsequent buyers.
Today’s 4% mortgage rates represent the end of the road for the artificial appreciation based on falling mortgage rates. Future generations won’t be so blessed – and they know it — which is why many don’t buy homes even if they have the means to do so.
And therein lies part of the problem in the housing market today: future generations aren’t enthusiastic about overpaying for real estate, and sales volumes suffer at inflated prices. Today’s buyers don’t make the direct connection between their home purchase and funding baby boomer’s retirements even though the connection is very real; today’s buyer’s simply don’t want to pay so much for houses with little future appreciation potential, particularly when they know house prices can also go the other way.
Sachita Kumar did something that few people her age appear to be doing in 2015: She bought a house.
“We decided that we just didn’t want to pay someone rent, so we decided to own something,” says Kumar, 26, a telecommunications consultant. She and her husband bought a townhouse in Somerset, N.J. and, unlike many Americans in their age group, they were able to afford the substantial 20% down payment. “A reason a lot of millennials don’t own is because of that,” Kumar says.
There are many practical reasons why millennials hold off on buying. Young adult employment has risen to around 7.7%, according to the Pew Research Center, up from 6.2% in 2007. Kumar has advice to those who can afford it: “You should definitely buy.”
Take it from a 26-year old telecommunications consultant. After all, she’s an expert.
She has a point. There are only two metro areas where renting is cheaper than buying for people aged 25 to 34, recent data from real-estate website Trulia found. Renting is 5% less expensive than buying in Honolulu and 2% less expensive in San Jose, Calif., but buying is a no-brainer in 98 of 100 metro areas. It’s also 11% cheaper to buy than rent in the New York and New Jersey metro areas, where Kumar bought, and 10% cheaper in Newark, N.J. and San Diego. And it’s more than 40% cheaper to buy than rent in Houston and San Antonio, Baton Rouge and New Orleans, Syracuse, N.Y., Fort Lauderdale, Fla., and Miami, Oklahoma City, and Detroit.
Zillow and Trulia established a small modicum of trust among buyers when they were competitors who catered to them, but since the merger, they have become sellouts rivaling realtor.com with their self-serving bullshit.
Millennials have received a lot of criticism for holding back the housing market by not buying as many homes as economists (and would-be sellers) would like. …
Why would housing economists care? Perhaps because most of them are employed by realtors, lenders and homebuilders?
What’s more, home-price growth has continued to outpace rent growth since 2012, he added, but many people — especially in big cities like New York and San Francisco — are unlikely to be able to afford to buy in the same neighborhoods where they rent.
And yet there may be a less obvious reason, aside from the financial commitment, why so many Americans are reluctant to buy: Bureaucracy. “There is a substantial amount of paperwork,” Kumar says. “The bank goes through everything like the FBI. It’s a very gruesome process and takes months.”
We tried skipping all that onerous paperwork during the 00s, and it didn’t work out so well. It was so bad we had to pass Dodd-Frank to get banks to do their jobs and assess the borrowers ability to repay the loan.
This kind of manipulative nonsense reporting is obvious to even casual observers. Notice these comments from the article:
More are living at home because both rentals and home prices are overvalued. Baby boomers have pretty much destroyed the economy
Are you listening, millennials? I mean that is what these articles are all about – to coerce you into buying a house so a lot of people can make a lot of money.
What’s that you say? Prices are in the stratosphere, credit hurdles are way too tight, and you are afraid that after the Chinese investors realize their foolishness, they will bail and flush the whole real estate market in the process?
I don’t blame you, at all.
“Why millennials should buy a home today” Yes, always buy a home at the top of a housing bubble.
Buy so the baby boomers can get out from under? Sounds like a plan perhaps if you want to be a bagholder.
So what say you Millennials? Will you get out and buy a house, or will you continue to be a generation of housing losers?