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Could Gen Y be the solution to the housing crisis? As a huge proportion of the population (21%, according to this really interesting graph) and buying power, we could be, if only we wanted to settle down. According to a recent report by McCrindle Research, Gen Y is delaying, and in some cases, shunning, homeownership in lieu of a more liberated lifestyle of renting. Also known as the boomerang generation (we just keep coming back to mom and dad!), an increasing number of Gen Yers are living at home, with all the modern conveniences of adulthood (no curfews or mandated chores) and nostalgia of childhood (dinner's at 6, your laundry is folded) included.
Until recently, Gen Y's parents have been able to use the homes they purchased 20-30 years ago to fuel their comfortable lifestyles through home equity loans. The great return they experienced on their investment in homes allowed for this. Adjusted to 2000 levels, U.S. home prices doubled from 1970 to 2000, according to the U.S. census. An April Wall Street Journal article described the comfort that a home brought to Americans over the past several decades. Expressions like "a man's home is his castle" and "there's no place like home" call to mind how American culture has latched onto the concept of owning four walls and a patch of lawn, which exudes feelings of autonomy, capitalism, and most importantly, pride.
Enter the subprime mortgage crisis. With foreclosures skyrocketing and people unable to sell homes for break-even prices, many Gen Yers do not view homeownership in the same light as their parents. Homeownership is stressful and carries a lot of baggage. Many of those who bought just a few years ago are trapped in up-side-down mortgage, unable to sell their homes to relocate. When selling your home isn't an option, renting won't necessarily earn enough to pay the mortgage in today's competitive rental market either. Property taxes are going up, rents are going down. So where's the appeal? Is the ability to paint your walls any color you like really enough of a driver to commit yourself to a 30 year mortgage? This is the question going through many young Americans' minds today.
Obviously my paint comment is tongue-in-cheek. What really stops me is this: the house that mom and dad bought in 1977 for $70,000 is now worth $500,000 (after dipping from a high of $600,000-but I have trouble feeling bad about that). Analysts are saying we are going through a major "price adjustment" in the property markets. If we've learned anything, the next generation of home owners should not experience the same return on investment that mom and dad did. It is clearly unsustainable-even when we exclude inflation.
These feelings have made some young Americans trade in their aspiration for a white picket fence for dreams of a studio apartment in the city with a great flat screen TV, or the ability to spend a year driving cross country, or the opportunity to take a job teaching English abroad on a whim.
For the economy, it's an unfortunate trend. Never did America need 70 million homebuyers more than right now. While I doubt that homeownership will ever fade as the epitome of the American Dream (according to a poll on WSJ.com, 56% of voters still think buying a home is a good investment); I do think people will start to realize that a house is a living expense, not a life.
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September 21, 2009 9:50 am
This is really interesting information. I thought I was on my own with the thought of not wanting to buy a house. I moved every couple years my entire life. At this stage, I can't imagine committing to a location long enough to buy, not to mention knowing how much work goes into buying and selling.
Plus...I really like that I can upgrade to new appliances and carpeting whenever I want. And maintenance on staff 24/7. That's a lot to love.
Thanks for the insight!
September 21, 2009 10:06 am
I wholly agree with this article. I just settled down into my new home very recently (thanks to the huge tax credit). Before that I was a happy renter living a care free existence. All too often, I've heard people (mostly Baby Boomers who benefited from the large increase you spoke of) say that renting is wasting money. I've heard one colleague go so far as to say that renting is akin to "setting your money on fire". I happen to believe that owning a home is setting your money on fire. In all my years of renting, I've never had to spend 5,000 to 10,000 on a new furnace, water heater, A/C, etc. I know nearly 100% of my friends have had to shell out big bucks on repairs for their homes.
The revised analogy I like to use is if renting is setting your money on fire, then its like lighting a fuse that never ends; buying a house is like taking a blow torch to your money.
September 21, 2009 10:08 am
I like this post, too. There are some markets -- like NYC and Silicon Valley -- where there is no choice but to rent. Because buying even something small is $400,000. Because the influencers tend to be in this type of city, it means that influencers are renting, not buying, and I think that affects how the whole generation views the rent vs. buy issue.
Penelope
September 21, 2009 12:37 pm
About two years ago I came very close to the mindset of buying a home in a inexpensive area of Massachusetts and attempting to settle. This mindset was sort of contingent on other factors in my life, but after about a year of trying to convince myself that buying was the best thing to do, I realized it went against most of my professional and geographic ambitions.
The profitable flipping of houses and condos is an attractive part of home ownership. Heavens knows it'd help me pay down these student loans faster, but the trade off of owning a residence compared to being able to pack up and move for a dream job is just too much in my opinion.
Buying eventually seems like a good idea though... when? I don't know yet!
September 21, 2009 12:46 pm
This is an interesting trend. I can be thrown right into that stereotype of not wanting to buy, simply because I enjoy my transient lifestyle that the 20's offer. I know how jobs can change and I love relocating because it teaches you so much and lets you see which city you enjoy most. For now, I'm okay with renting because it fits my lifestyle. I want to be 100% sure before I buy...it's just how it is for me now.
September 21, 2009 2:39 pm
@JRMoreau- It's depressing that you're right. You wouldn't need that sort of flexibility if dream jobs where more plentiful. I'm in the same boat. I can't rationalize purchasing a home if I'm not certain there is a place for me to find career happiness in Tampa. Until I know that my work future is secure, it doesn't make sense to be tied down.
September 21, 2009 3:12 pm
Great article. I live in Santa Barbara and renting is the only option for anyone making less than 200k. The cost of a 2bd house is between 650k and 800k. The only thing cheap are mobile homes and they run around 400k!
I have rented all my life and I even had a few years when I went back to live with my parents. I have traveled a lot, traveled for work and moved away for graduate school. Not owning anything really gave me freedom to do what I wanted. I have to admit though, I am starting to think about moving somewhere less costly and buying at home. I am sure I want to stay in California and I am starting to feel the itch to settle down. While I agree that owning does add financial responsibility (not less), I feel like I am now ready to make that commitment. And glad I never made it before.
September 21, 2009 9:26 pm
Interesting. I bought a house some years ago simply because I couldn't afford not to. As a young techie, I was getting killed on taxes. Owning a house was a great way to invest while still getting a fat tax break. I basically bought the minimum house I needed in a transitory neighborhood.
The other big reason for buying a house was I was continually having to move because of landlord issues - "we're renovating, get out", "we're jacking the rent up 10% per month unless you sign a 12 month lease", "No pets, no parking". It all got so tiresome to not be in control of your living space.
September 21, 2009 10:53 pm
Ray hit it dead on with the landlord issues. Got so tired of the control issues. Then there were the tenants in an adjoining house who were dealing drugs and guns, and the landlord refused to do anything. After a big raid by DEA and ATF, including seizure of the whole property, the landlord informed us that we "weren't welcome anymore." Even though we didn't drop the dime, I think she still suspected us of doing it.
Also, finally got the wandering out of our blood, and just got tired of tossing our bags on the floor, calling it home and never really unpacking.
September 22, 2009 8:05 am
Thanks for all the comments! There are definitely draw-backs to renting and to be honest, my husband and I are still deciding whether or not to buy. We just relocated from Fairfield County, CT to Boston, so we are dealing with the fact that housing prices are really high and a "starter home" can cost $400,000+. To play devil's advocate with my own argument though, we've spent about $60k on rent over the past 3 years and don't have anything to show for it. We were lucky to have a great landlord and sweet neighbors; and if we had bought 3 years ago, we'd probably be in big trouble today and our move would not have been possible. Hopefully the tax credit will be extended so we have more time to mull this over!
September 22, 2009 8:27 am
Looks like the latest U.S. Census data supports some of our theories! Interesting read:
http://www.cnbc.com/id/32963290
September 23, 2009 1:17 pm
I am in the same boat, literally! I moved to take a new job in the Seattle area and after a short 4 month lease in an apartment made the decision to buy a home.
a 1978 30' sailboat in the dead of winter for 8,000 dollars is what I got and I love every minute of my "home" life. I get a lot of joy out of this lifestyle, my weekend recreation is tied into my housing situation. A day sail to relieve some frustration is never out of the question, my fiance loves living on it as well so that is a bonus and I get to keep things simple!
Buying a "house" doesn't always have to mean being a landlubber!
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Grad School Zone
UVA (Darden) MBA Admissions Deadlines for 2010-2011
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The University of Virginia's Darden School of Business recently published its application deadlines for the coming admissions season. Here they are, followed by our comments in italics:
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