Profound Commentary on Homebuying Demand From MBA President's Daughter

MND’s fourthrnpart of its summary of the Harvard Joint Center on Housing Studies’ State of the Nation’s Housing publishedrnyesterday looked at the impact the Millennial Generation, those young adultsrnborn between the early 1980s and early 2000s are having on the housingrnmarket.  Or maybe the impact they are notrnhaving is a more accurate way of describing it.</p

The article notes that over the tenrnyears ending in 2013 the homeownership rate of Americans between the ages of 25rnand 34 slipped almost 8 points.  Homeownershiprnamong the next older 10 year cohort was down 9 percentage points.  These are the age groups that usually drivernthe first-time housing market as well as being strong move-up buyers.  Their absence is beginning to be felt.  According to the National Association ofrnRealtors the market share of first-time buyers has been dwindling steadily and hasrnfallen from its historic level of 40 percent to a current 27 percent.  </p

Homeownership among minorities hasrnalways been and continues to be lower than among white households and thernminority share of younger age groups is growing, meaning that the homeownershiprnrate is likely to remain lower than in previous generations.  Add to that the effect of the recession on<bentry-level incomes, student debt, the tight credit (again a bigger problem forrnminority buyers) and, while the Harvard report does not mention it, the<bintangible shock effect of the housing collapse and recession on Americanrnattitudes today homeownership, and there is obviously a downward generationalrnpressure being exerted on the housing market.</p

Lorraine Woellert, writing for Bloomberg, looked at a father and hisrndaughter to illustrate how recent events may have altered attitudes towardrnhomeownership.  And she didn’t pick arnrandom parent and child; she interviewed David Stevens, head of the MortgagernBankers Association (MBA) and former commissioner of the Federal HousingrnAdministration, and his 27 year-old daughter Sara.</p

Woellert says Stevens has spent hisrncareer lauding the merits of homeownership. rnSara isn’t buying it.  </p

Six years after the housing marketrncollapsed Woellert says “some young adults are more risk averse and view thernpotential upsides of status and wealth more skeptically than before the crisis,rnaltering the homeownership calculation. It’s more than the weight of studentrnloans, an iffy jobs market and tight credit — even those who can buy arernhesitant.”   In Sara Stevens’ case, while she knowsrninterest rates are low and that owning a home can build wealth, “She also had arnfront-row seat to the worst real-estate slump since the Great Depression.”</p

Dad started her indoctrinationrnearly, showing driving her through neighborhoods and discussing house pricesrnand curb appeal from the time she was a toddler.  Sara said she always figured she would buy arnhouse when she hit her late 20’s. She is there now, with a good job and engagedrnto a man with a good one as well; little debt, a dad who is ready to help withrna down payment, yet she and her fiancée remain renters. </p

Sara Stevens says the world hasrnchanged but the statistics Woellert rolls out indicate it may have changed forrnthe better.   Back in 1984 when David Stevens, now 57,rnbought his first house for $73,400 first time homebuyers made up 37 percent ofrnthe market.  But interest rates were at arnscary 13.9 percent and the affordability index (which takes into accountrninterest rates as well as home prices) was at a middling 64.9 percent whereasrntoday it is 116.  Mortgage payments tookrnup 28.2 percent of a home owner’s income but Sara would be buying into arnscenario where that figure has dropped to 14.2 percent.</p

There was also more of an urgency tornget into the market back then.  Woellertrnquotes John Buckley, managing director of the Harbour Group, and consultant onrna MacArthur Foundation survey on homeownership: rn “There was a sense that the<bwindow was closing to get a good deal and be able to participate in thernAmerican dream.” Today, there’s “tremendous uncertainty about whether the valuernof that investment is going to be worth the commitment and risk.” </p

On a very important note, Sara and her fiancée are not saying “never”rnto homeownership.  They surf on-linernlistings but even though a mortgage payment might be cheaper than their rent, theyrnlike the urban setting of their current Arlington, Virginia apartment and thernconvenience and amenities it affords.  Sararnalso notes the longer term commitment of buying and says “I’m hesitant aboutrndiving in and feeling like I’m not financially ready.” </p

Woellert says the first of the Millennialsrnwere entering their home buying years just as the housing market collapsed andrnSara, whose father was appointed to his FHA position in early 2009, had morernoccasion than most to witness the impact first hand.  “Part of his job was to lobby Congress not torndismantle the financial architecture that had made it possible for generationsrnof Americans — including himself — to buy homes.”  But Woellert said he also was trying tornassist family and friends who couldn’t pay their adjustable rate mortgages orrnsell their devalued homes.</p

Sara watched all this while her dadrnwondered out loud how the housing collapse would affect her and herrngeneration.  Today he says the youngerrngeneration saw the effects of the housing bust and “They’re clearly being morernthoughtful about it and they’re clearly deferring that decision.”</p

Of course Sara and her fiancée arernnot typical of their generation and she acknowledges that. “I am incrediblyrnlucky,” she said. “My parents have positioned me well and they’ve given mernresources to take on a house if I really wanted to. I think that’s part of hisrnworry. If we’re still having this conversation, what’s it like for a wholerngeneration of other kids?” </p

And that whole generation has arnstudent debt load totaling more than $1 trillion, triple what it was ten yearsrnago and many have not been able to successfully launch careers.  They are also looking at a home buyingrnlandscape with higher down payment requirements and tighter underwritingrncriteria than before the crash.  </p

But a lot of the reluctance of thernMillennial Generation to become homeowners might be traced to the same roots asrnSara Steven’s.  They are what CoreLogic’srnchief economist Mark Fleming calls “Channeling Grandma.”  His own generation (he is 42) has weatheredrnthe financial upheaval better than Millennials who are jaded he says.  “Like their grandparents who went through therndepression, they’re apprehensive about overextending themselves.”  </p

Original Story From Bloomberg: He’s the Top U.S. Mortgage Salesman. His Daughter Isn’t Buying It

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