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2011-06-08 19:05:08

The Future of Entry-Level Homeownership

Only three years ago, it appeared that the future would likely include a healthy entry-level homeownership market. After all, the Millennial generation (also called Gen Y) rivaled the Boomers in numbers, and the youthful immigrant population (both documented and undocumented) continued to increase. Both groups were poised to be enthusiastic first-time homeowners. But a funny thing happened on the way to the future.


Is this future actually déjà vu? Strauss and Howe in their influential book titled Generations, made a persuasive case that generational personalities tend to repeat in four-generation cycles. In their book, Millennials Rising, they find this pattern born out in practice by similarities between the Millennial and G.I. Generations (which Tom Brokaw dubbed “The Greatest Generation”). But there is another almost eerie similarity in their experiences so far.


Members of the G.I. Generation were born between 1900-1925. They lived through the Roaring ’20’s with great exhuberance, when the future looked rosy. But when the oldest reached 29 the bottom fell out of the American economy. The next decade of the “Great Depression,” saw high unemployment and underemployment, if jobs could be found at all. The blow fell hardest on all who lost their jobs; but, it changed the outlook completely for the generation just entering the job market.


Fast forward four generations and we find that Americans are again prospering, their spending patterns even being described as “irrational exhuberance.” The large Boomer population is nearing retirement, and their exodus from the job market will open new opportunities for the emerging Millennial Generation. But then, when the oldest Millennials (those born between 1981 and 2000) reached 26 and most of their peers were still in school, the bottom again fell out of the American economy and we enter the “Great Recession.” The national unemployment rate shot up to over 10 %, Boomers saw the value of their 401K accounts decline and they began making less room for new job entrants as they delayed retirement, a trend that will increase sharply according the Bureau of Labor Statistics. Economic recovery is complicated by a debt crisis in Europe, a disaster in Japan, and unrest in the Middle East which, combined with growing demand from China, is driving up fuel and commodity prices. As a consequence, it is common to hear projections that the return to a healthy jobless rate may take a decade. And the perceived effect of immigrants competing for the low supply of jobs has made Americans less accepting of new immigrants, and especially, of course, of the undocumented.


Compounding these problems, the Millennials are strapped with unprecedented levels of education debt. Public support for education has declined and total student loan debt is fast approaching $1 trillion, a drag on future plans for homeownership for many graduates. In addition, some economists indicate that this recession may have a lasting effect on the job mix. Those with relatively low levels of education are likely to see good-paying jobs permanently lost, replaced by an increasing number of lower-paying positions. In this environment, one might at least hope for easier home loan terms. But just the opposite is happening. It has become harder for entry-level buyers to obtain loans as mortgage lenders have tightened up on requirements, demanding larger down payments and full documentation of earning history. As a consequence of these trends, young Millennials are likely to delay homeownership, moving “back home” or becoming renters instead. As to entry-level immigrants, many have lost their homes and some will never return to the homeownership market.


The economic recession has hit real estate especially hard. But nowhere are changes in future demand likely to be felt more strongly than in the entry-level homeownership market.


So, are there any real estate clients left? Boomers own the most real estate including second homes. While they may have seen their property values decline, this would be good time to buy that single story smaller home or move to an urban easy care luxury condo that fits their new lifestyle. After all, those properties also have soft prices. And the young Millennials may find that those urban condos fit for them, also. Perhaps we need to redefine “entry level”. Perhaps that smaller home or condo is a meeting place for both generations. Rental rates are increasing making mortgage payments attractive. So far mortgage interest rates are lower than they have been in decades and mortgage interest payments are still deductible, FHA still has low down programs and loan limits are attractive. For each of these generations, it is important to understand what drives their real estate decisions. It is also essential to understand how they make decisions, what they expect from an agent, and their very different styles of communicating. Boomers and Millennials need an agent’s expertise to overcome today’s challenges. Become their agent of choice.


Authored by Carmen Multhauf, Administrator of the Generational Housing Specialist™ Council and the GHS™ Designation

Carmen and Lloyd Multhauf are the founding developers of the Generational Housing Specialist™Council, a national real estate designation that focuses on the unique impacts made by different generations in establishing housing trends, financial products, negotiating skills and reaching a successful closing. You can read more at

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