Millennial homebuying intentions: The good and the bad

We have seen two new reports in the last 48 hours about the homebuying intentions and behavior of younger households presently renting.

First, a note on sources. All of us have our biases — some known to ourselves and resisted, some intentional, and some so deeply ingrained that we’ve forgotten they are there. Sources inside the industry tend to be optimistic (nothing unusual), but some are more over-the-top than others, both with exaggerated emphasis of good news and avoidance of poor news.

Sources outside housing come in many forms, from local media to big-time national. A subset of the latter are financial media. You’d think financial media would be straight shooters on all of finance. However, a significant portion is hostile to housing, sees housing as an unwelcome competitor of the stock market, an unwise and excessive allocation of capital, and the related supply of mortgages too big and too deeply entangled in government.

Just sayin’. Keep a shovel full of salt nearby.

The good

One of these brand-new reports is from the National Association of Realtors, and finds — surprise! — that a huge portion of the renting public wants to buy, thinks it’s a good time to buy and a good investment. Roughly 85 percent.

In the last several years as homeownership has fallen, the financial press has had a merry time saying the youth set has finally wised up, that buying is a bad idea and bad investment. Just look at all of those foreclosures!

It gives me a warm feeling at Christmas to see that unkind foolishness exposed. The increase in rents in the last two years has been the primary driver in CPI (consumer price index) — without that increase, CPI would be near zero, as in Europe, where rents are not included. Rents here have risen two or three times as fast as incomes, a punishing figure.

The painful part of the NAR survey — half of households unhappy with the state of the U.S. economy — leads to the second renters-to-buy story.

The bad

Fannie Mae is capable of self-serving reports, but it is straighter than the finance types think, and by a mile. The Fannie survey has good, accurate data, but it has gotten into Mommy’s lipstick.

“Young-Adult Home-ownership Is Still Declining, But at a Moderating Pace.” Yes, I suppose that’s good news, but after youth ownership has dropped from 21 percent (aged 25 to 34) to 17 percent since 2008, possibly stabilizing now, when are we going to spike upward to recapture the lost cohort?

Those figures are per capita, but household numbers are worse. In hard times, the size of our households grow, more people in each (we band together to survive); ownership by young households fell almost 10 percentage points since 2008.

We can look forward to sustained future demand from those who deferred purchase, and the signal will be an expanding count of households as we spread out into fewer people per household. For that to happen, we need continued growth in incomes. Fingers crossed, here.

Lou Barnes is a mortgage broker based in Boulder, Colorado. He can be reached at lbarnes@pmglending.com.