Millennials may shy away from mortgages
Builders are eyeing the next wave of potential home buyers — the so-called millennials — but whether this rising generation will embrace big mortgage debt remains an open question.
These 95 million people outnumber their baby-boomer parents by 10 million. The young adults among them, sobered by the recession, have relatively modest material expectations; many say they'd be happy with smaller living spaces.
The housing industry will have to convince the next generation that home loans are as necessary and prudent as the student debt so many of them carry. Young Americans have shown a strong aversion to credit card and other consumer debt after seeing their families' affluence “yanked out from under” their elders by the housing crisis and the recession, as one expert put it during a recent housing conference in Anaheim, Calif.
Fast growth in student loans presents a particularly vexing issue, because high monthly payments make it impossible for some young adults to save for a down payment or fit a mortgage into a monthly budget.
Many millennials can't afford to leave their parents' homes to rent apartments, much less buy homes, said University of Southern California social-trend scholar Morley Winograd, co-author of “Millennial Momentum: How a New Generation Is Remaking America.”
“We haven't done well by this generation in terms of opportunities,” Winograd said this month at the No Place Like Home conference, sponsored by builders' groups at Disney's Grand Californian Hotel. “We tell them they have to go to college to get ahead these days, but there's no GI Bill to pay for their education.”
In an encouraging sign, the median debt of households headed by people younger than 35 fell 29 percent from 2007 to 2010, according to Pew Research. That contrasts with a mere 8 percent decline for households of those 35 and older. But younger adults accomplished that feat mainly by owning fewer homes and cars.
Questions over the finances of young adults contributed to recent mixed signals in the home-building industry, along with concerns over the costs of materials, land and labor.
The National Association of Home Builders/Wells Fargo survey said builder confidence rose 3 points in May to 44 — but readings under 50 mean the consensus outlook is poor. Housing starts topped 1 million in March for the first time in nearly five years before falling in April, but that's far below the historical monthly average of 1.5 million starts.
Student debt has risen eightfold, to an average of $26,000, and many young adults owe six figures by the time they look for jobs, Winograd said.
One result is that millennials are “very much value buyers,” Winograd said. Three-quarters of them say they need “essentials,” not a luxury home, although they are tech-oriented, interested in home theaters and fast Internet connections.
How are they going to afford homes?
“They're going to buy fixer-uppers. They're into do-it-yourself,” Winograd said.