Millennials – 2014’s Greatest Potential for Housing Recovery
I remember the days of my parents’ generation, when as young adults they got a job, got married, stayed in one job their whole career, had 2.5 children, and owned their home. While that dream of home-ownership may still be alive, it is much different than many may recall from the past.
Today, the generation known as Millennial's (1980-2000) makes up about 25 percent of American workers, according to the U.S. Bureau of Labor Statistics. By 2020, that number will grow to more than 40 percent.They are more mobile in their careers, have differing sources of income beyond the standard W-2 salaried sources like that of our parents, and have different ways of forming a household than we saw in our past. At some point they will need and want their own home - they can’t live in mom and dad’s basement their entire life.The key questions are, will they rent or will they buy, and will they have that choice?Are they suburbanites like their parents, or do they prefer urban areas closer to their place of employment and public transportation?
According to the PulteGroup Home Index Survey (PGHI) released earlier this year, 65% of Millennial's, who are renters with an income of more than $50,000, indicated their intention to buy has increased in the past year. Many in the survey viewed purchasing a home as a good investment.(PGHI Survey: https://phx.corpora-ir.net/External.File?item=UGFyZW50SUQ9MTc3ODU2fENoaWxkSUQ9LTF8VHlwZT0z&t=1)
Unfortunately, many obstacles stand in their way and may leave them with only the option to continue renting.Clearly, owning a home is not for everyone but the real question is how to address unnecessary barriers that may exist for qualified younger people who truly want to own. Younger segments of the adult population typically have moderate credit scores or very little credit history. Some have just enough savings for a low downpayment.They may be starting out with moderate incomes.They have also made large investments in their education, adding school loans to their debt portfolio.A recent CNBC article provides further even details and supporting evidence on the Millennial Generation’s difficult roadmap to homeownership (https://www.cnbc.com/id/101229496).
And yet despite this challenging reality, policymakers in Washington continue flirting with the idea of higher downpayment requirements, even for FHA. In today’s regulatory environment coupled with tight home inventories, these potential first-time buyers are, and will, continue to be blocked from home-ownership.
Across the policy spectrum the confusion and conflict in rule-makings only adds to the challenge in getting this housing market back on track.While well intentioned, the goal of protecting consumers through a variety of rule makings including the Qualified Mortgage (QM) rule and the soon to be final Qualified Residential Mortgage (QRM) rule, may end up creating barriers for this new generation. In an effort to protect consumers, the efforts may end up simply eliminating the option to own for far too many. Even Freddie Mac and Fannie Mae have reduced the ability for any borrower with a low down-payment and average credit score from having access to a home loan at a reasonable price, thanks to the strict standards and expensive loan level price adjustments they place on lenders who sell them loans.
In 2014, we’re expecting $1.2 trillion in mortgage originations, a 32 percent decline from 2013.Purchase originations should increase nine percent, but refinance originations are expected to fall 57 percent with mortgage rates increasing to five percent for 2014.
The Millennial Generation could have a profound influence on the health of the housing market and more importantly the US economy, but if they continue running through the obstacle course of housing barriers we may see broader impacts to them and the nation.We must share the goal to achieve housing finance reforms that encourage more private sector participation, protect against unsafe lending abuses, but avoid unhealthy obstacles that could prevent a true rally in the purchase markets. If we get this wrong, we won’t be able to return to a time when Americans of modest means can have solid prospects for home-ownership, just as our parents had when they were young and starting their careers and families.
Photo: Ken Wramton / Getty Images
Freelance Website Developer | detroix.com
10 年It would be so nice to have the ability to afford a home! Unfortunately, I have another ghost mortgage to pay off first - Sallie Mae. If I could make 60k (AFTER TAXES) that would be a miracle, but unfortunately making much less than half of that after taxes makes it very difficult to do much more than chip away at current debts. I think If more currency per unit was circulating through the population...this wouldn't be an issue for a large percentage of Millennials. Wealth Inequality is the problem. Period. Here is a video I ran across earlier in the year - Watch: https://youtu.be/JTj9AcwkaKM
Director, Senior Investment Advisor and Accredited Investment Fiduciary at Canon Capital Wealth Management
10 年My strong word of caution to first-time home buyers is to be realistic with your expectations and evaluate your reasons for buying a home before jumping in, head first. When I ask a young person why they want to buy, almost always, the answer is because the renter feels like they're throwing money away. While that might feel like the case, the "starter home" mentality can be a money trap... and the buyer really should beware. In a low appreciation environment like we're in, if you plan on being in a home for less than 10 years, there's a very good chance you're going to lose more money owning (than renting a similar apartment). Why? Because of all the sunk costs you're paying for when you own that you don't have with renting... property taxes, maintenance, upgrades that you'll make to make it "yours"... and even more so because with home ownership you're starting the race with a 20 meter deficit. When you look at all the one-time transactional costs... customary 1% transfer payment (buying and selling - so 2% total), 5-6% realtor commissions (coming and going), MIP (if you're not putting down 20%), mortgage interest... you are getting tax breaks that you wouldn't otherwise get but if you're in a low-tax situation (which is often the case with young workers) and a low-interest rate environment, then how valuable is that tax break? If you're in a 25% bracket and you're netting an additional $5,000 in deductions (over and above the standard deduction) from home interest/taxes, you're pocketing $1,250 at tax time... all while paying out tens of thousands in interest in taxes and other costs. I think that, conservatively, a house probably needs to appreciate 15% before you make a dime. If you can find a "real bargain" (think auction/foreclosure) or if you're willing to put some sweat equity into a "fixer-upper," you can probably make some money but if you think you're going to walk into a move-in ready townhome and not lose money when you get married (or outgrow your space) and sell it 5 years later, you're almost certainly wrong. And I speak from experience... the worst financial decision I ever made was buying my starter home in late 2007. I got caught in the downturn so it was especially painful but when you run the numbers, it doesn't take long to realize why the "American Dream" mentality that says you have to own your home is somewhat flawed.
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10 年Where is downvote button?