The economy might be firing on all cylinders but for millennials who are seeking to buy a home, a recession can’t come soon enough. This might seem like a bold statement but the combination of student loan debt – even for those in their mid-30’s – stagnate wage growth, and a lack of affordable starter homes have left many would be Millennial home buyers out in the cold.
This is not opinion, this is the view of Mike Fratantoni, the Chief Economist at the Mortgage Bankers Association. In a recent interview with CNBC, Mr. Frantantoni told the financial news network that Millennial home buyers are increasingly being squeezed by the economy.
In fact, there is further evidence that the housing market could be heading for a ‘new normal’ as buyers are essentially locked out the market until their mid-40’s at best. One of the drivers being this phenomenon is the fact that average hourly earnings have resisted the urge to grow, even though the U.S. economy is now in one of the longest periods of economic expansion on record.
While economists have offered dueling theories for sluggish wage growth, the fact is that record low unemployment has done little to drive up how much people are taking home. This is especially true for older Millennials, many of whom entered the workforce just as the economy was reaching its low point in 2009 and as such, they have been unable to catch up since then.
Adding to the problems has been the recovery in home prices. According to a recent survey by S&P CoreLogic Case-Shiller, home prices across the country are now nearly 6 percent higher now as compared to the previous peak in 2006. However, this run-up in home prices has not fueled a cycle of upgrades as homeowners’ cash in on the value of their homes to purchase an even larger home. As such, this ‘boom’ differs from others. Potential reasons include Baby Boomers who haven’t yet started to move into smaller homes enmasse and Gen X’s who were burned during the last recession and have been reticent to take on a larger mortgage.
Beyond this, there is the issue of household debt. Granted Millennials are dealing with the after-effects of student loans but most generations are now living with a higher percentage of debt compared to 20 years ago. While many people struggled to pay down their debts and thus qualify for a loan, few have taken the extreme step of seeking bankruptcy protection.
This could be due to the relative stability of the job market, or potentially it is a psychological bias against declaring bankruptcy. Either way, for those living in debt, they might want to check out services likehttps://www.getfreeofbills.com/ as is might be their best shot to get out from under their debt burdens.
Back to the housing market, another shift which is hurting Millennials is the move by most younger Americans to remain within cities. Contrast this with Baby Boomers and their parents who essentially trail blazed a path out of the cities to the suburbs. Homebuyers who want a smooth home-buying transaction may work with a reputable Real Estate Closing Agent. They may also hire a property condition assessment consultant to help them get a comprehensive assessment of the property you’re planning to buy.
While it is too early to know if this trend signals a permanent shift in where Americans work and live, there is no doubting that many cities across the country have been left to deal with a severe shortage of affordable housing.Of the major cities, the lack of affordable housing in San Francisco usually grabs most of the headlines but cities like Los Angeles, New York, and Boston have also face housing shortages. One consequence of the net migration to cities is that many areas have gone through rounds of gentrification. While these ‘urban renewal’ projects have brought new businesses to the communities they serve, they have also alienated residents who can no longer afford to live there.
What does this mean for Millennial home buyers? In many ways, a recession or a dip in housing prices cannot come soon enough. Barring that, the alternative would be major employers seeking to move out of major cities and setting up shop in second- or third-tier cities – such as Syracuse, New York. However, such a move might not work as many Millennials choose the nation’s major cities due to the broad base of services available.
But all is not lost. According to some analysts changes to tax deductions for home mortgage and property tax payments could help to cool housing markets in some parts of the country. While it is too early to tell if this theory is playing out, this might be the Millennial home buyers best bet.
