Not sure if you noticed, but the highly anticipated millennial generation is not exactly pulling their weight in the housing market.
This group of 74-million consumers (now ages 18 to 35 years old) is the primary focus of much marketing attention because of its size and supposed affluence. For many market sectors (ex. consumer electronics), there is much to be gained by catching the attention of this group. But for the housing market, this generation has become a disappointment.
New market research recently reported in the Wall Street Journal documents the depressing millennial generation realities:
For now, the absence of young adults from the housing market continues to put a dent in the homeownership rate, which dropped to 64.8% in the first quarter, compared with 65.2% in the fourth quarter of 2013, according to U.S. Census statistics. The rate was as high as 69.2% in the fourth quarter of 2004.
For those younger than 35, the rate has fallen noticeably faster. It slipped to 36.2% in the first quarter, from 36.8% in the fourth. The homeownership rate for this group was as high as 43.6% in the second quarter of 2004.
Of course, this begs the question: Why is this happening?
I’ll address this question in today’s WorkPuzzle.
Secondly: How will this impact real estate recruiting?
I’ll cover this topic in our discussion later this week.
Market Watch reporter, Amy Hoak, recently did a great job of boiling down the factors that are keeping millennials from entering the housing market. Here is a quick summary:
Unemployment and low savings
The unemployment rate for 18-to-29-year-olds was 9.1% in April, which rises to 15.5% if you include those who have given up looking for work… The unemployment rate was 6.3% in April for all ages.
Forget that without a job it’s just about impossible to get a mortgage. (It’s also hard to rent: 29% percent of adults younger than 35 live with their parents, according to Gallup poll results released earlier this year.) A slow start to earnings also means a slow start to saving. The majority of younger renters report having insufficient assets to cover a 5% down payment plus closing costs on a typical starter home.
Consumer Debt plus Student Debt
Young adults tend to have a high utilization rate on their credit cards, an average debt of $23,332 and high incidences of late payments. [In turn], Millennials also have the lowest credit scores [compared to other generations].
While a mediocre credit score might not have mattered all that much 10 years ago, it takes higher scores to obtain a mortgage today. And improving a score takes time.
In 2012, 1.3 million students who graduated from four-year colleges (or 71%) had student loan debt…. Graduating seniors with student loans had average debt levels of $29,400 in 2012, up 25% from $23,450 in 2008.
And new mortgage regulations, set into motion by the Dodd-Frank Act, require that borrowers have no more than a 43% debt-to-income ratio (with debt encompassing monthly housing costs and debt payments, including those on student loans).
Delaying marriage, family
The median age of first marriage is about 27 for women and 29 for men, according to the U.S. Census Bureau. In 1950, it was about 21 for women and 24 for men.
Because people are marrying and having kids at an older age, many young people might spend more years renting apartments and living in cities, before moving to the suburbs.
Meanwhile, the average age of first-time mothers was 25.8 years old in 2012…. The average age was 21.4 in 1970. [During the same period], first-birth rates…rose for women between the ages of 30 and 39, the data shows.
Bottom line: People with no money, no savings, lots of debt, and little motivation to change don’t make good real estate customers. Hopefully this set of circumstances will change over time (if nothing else, these young people will eventually grow up), but it may take awhile.
Also, this may be a pattern that will continue to be followed by future generations in a “post traditional values” America. How you adjust to this reality is a problem every real estate company must solve.
Next time, we’ll discuss how this reality is impacting real estate recruiting. You may be surprised at some the changes that will be NOT be coming…
Editor's Note: This article was written by Ben Hess. Ben is the Founding Partner and Managing Director of Tidemark, Inc. and a regular contributor to WorkPuzzle.
