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Was the Housing Collapse just a Warning Shot?

21 October 2010 by 22 Comments

Real Estate Trends

It has been five years since the height of the market, and the housing industry is still trying to fight its way out of the downturn. The recession and unemployment have already placed severe pressure on homeownership rates and now the industry may actually be facing another major hurdle.

Here’s the problem. Baby boomers are getting older. Generation Y is now approaching the age in which Boomers bought their first home. Yet Generation Y doesn’t attach the same value as Baby Boomers do to owning a home. So what happens if they don’t buy – at least, not in the same numbers?

Technology, demands, and interaction styles are rapidly changing and what people want is substantially different today than 30 years ago. So if Baby Boomers in large numbers want to sell off their homes, and the incoming Gen Y does not buy it in the same numbers, we may have a significant shift in demand vs. supply.

real estate trendsThe country’s two largest demographic groups – the Baby Boomers (78 million) and Generation Y (73 million) are playing a game of checkers, exchanging pieces of power with one another left and right. This shift is occurring as each generation reassess their priorities, searches to resolve changes in styles and demands, as well resolutions for economic limitations.

A senior resident fellow at the Urban Land Institute, John McIlwain says that the largest concern with Generation Y is that with a 30% unemployment rate and an average of $23,000 post-college debt, the majority isn’t saving for a down payment, and their parents – mostly Baby Boomers – are struggling to recover their own retirement savings.

I am a Gen Y and although I want my own home, one-day, my idea of a home is not suburbia. It is not a small patch of land with a white picket fence, two dogs and a cat. The world is my oyster and I have places to be, things to do, and oh yeah, not to mention debt to pay off. So adding in a mortgage loan is not appealing – renting sounds easier, simpler and more fitting.

Like our parents who sought a better life – the American dream, the white picket fence – that saw the struggle of the silent generation through two wars and the depression. We too are seeking a better life. We want a life that is not falling under the weight of the white picket fence. As Gen Y, we have grown up with technology. So most of our lives are digital and online. Our home is our laptops, our iPods, our Smartphones, our Facebook pages.

The US Census Bureau shows that homeownership rates have fallen nearly three percent (3%) since those sunny days before the crash. We are down from 69.2% to 66.9% and if we stay on our current course, we’ll be well on our way to the beat the lowest levels of homeownership seen in decades.

We have all the makings for a journey down the rabbit hole, much like Alice in Wonderland. Only this time, she’ll be saying “There’s no place called home.”

About the Author

Tinus (24) is the eldest son of Stefan Swanepoel, author of the annual Swanepoel Trends Report. He serves as Publications Manager for RealSure, Inc. and also is part of the research team for the annual report. His background includes two Bachelors of Science and a minor in Management. Tinus enjoys expressing his creativity in design and considers himself a big dreamer and a problem solver.

For more information on products he’s involved in, go to http://www.retrends.com.

Editors Note

  • http://www.facebook.com/tinus.swanepoel Tinus Swanepoel

    You’re definitely right Jeff! Real Estate is a basic need. We all do need a place to stay and a roof over our heads. The thing to look out for is the disconnect between Boomers and Gen Y. Just image if the industry as a whole chooses to not correct itself for another 10, 15 years?

    In a recent post, Stefan spoke about the delay in accepting technology and in part change (read the post: http://realblogging.com/stefan-swanepoel/realtors-are-not-stupid/) in the industry. This delay has to be addressed. Like you said, the market has to correct itself, by our choice or by force.

  • http://twitter.com/AndreaRealtor Andrea Geller

    Great insight for your first post. Thanks for sharing.

  • http://www.mikebowler.net mbowlersr

    Great post Tinus. Lifestyle has to be part of the equation when it comes to buying that home. Mowing a lawn, shoveling snow, making repairs and paying high property taxes have to fit the life style any of us want. Keep posting your thoughts, it's valuable to those of us in the business that want to understand how you think.

  • http://www.facebook.com/tinus.swanepoel Tinus Swanepoel

    Thanks Mike! You're very right, its all about the lifestyle. Ill do my best to share more thoughts from Gen Y!!

  • http://www.facebook.com/tinus.swanepoel Tinus Swanepoel

    Thanks Andrea!

  • http://www.onlineed.com Jeff@OnlineEd

    Interesting perspective, and certainly thought provoking! Good post.

  • http://www.onlineed.com Jeff@OnlineEd

    Interesting perspective, and certainly thought provoking! Good post.

  • http://www.RealtorJeff.net Jeff

    Keep in mind, though, home ownership isn't the key. Even Gen Y-ers will need a roof, however meager, over their heads, and that will cost money. As Boomers age and sell, Busters may not want to buy; the price will go down…to a point where it will cost as much to rent a place as it would to buy the place. Gen Y-ers are smart enough to figure out that they're better off buying for the same price that they could rent. The cool thing about real estate is that it is a basic human need; it will never go out of fashion. And the cool thing about markets is that they correct themselves. I'm thinking tha there will always be a place called home…somewhere.

  • http://twitter.com/ProfessionalOne Michael McClure

    Tinus,

    Fantastic job, especially for your first post! I see that you clearly have your father's DNA.

    I am giving a speech at the NAR conference in New Orleans in a few weeks, and I may end up quoting this blog post in my presentation. I think your points are spot on and paint a picture of an altered home ownership landscape in the near future.

    The real estate industry – much like the home owner who bought too big a home and then got crushed when the market collapsed – has overextended itself and needs to get smaller (and much more professional, but that's a conversation for another day). And I think A LOT smaller.

    Further, your points about technology and its role in your generation's lives is VERY telling in terms of how the industry will need to adapt to serve you the way YOU want to be served. A lot of people don't get just HOW different your generation is from mine. I see it quite clearly, and I find it exciting.

    Great job, Tinus! I can't wait to read more from you!

    Best,
    Michael

  • http://www.facebook.com/tinus.swanepoel Tinus Swanepoel

    Thanks Michael!

    It is very interesting to me to see how approaches to life vary from generation to generation. There is definitely going to be a major shift in the real estate industry as a result of Gen Y's heavy use of technology. I just hope that the industry hears the warning shots before it late.

  • Doug Ward

    Sounds like another good reason why I should buy more rental properties that appeal to younger people in urban areas!

    Doug Ward

  • http://twitter.com/ProfessionalOne Michael McClure

    Tinus,

    I SINCERELY hope that you will write more on this topic – a LOT more.

    And, if you can do it in the next two weeks, that would be much appreciated! LOL

    Best,
    Michael

  • http://www.miamipropertysource.com Carlos

    Good blog and perspective. In my case I am a Boomer with a background in planning, architecture and real estate…I see things a little different. I think uncertainty is keeping people from transacting. Boomers like me are not downsizing in numbers yet, because the market has not yet stabilized and younger generations, at least in our part of the country, want to buy but new financing regulations are keeping them out of the market.

    Granted the South Florida market is different than other real estate markets. We have in-migration, immigration, second home buyers, investors local, national and international. Our local market has settled into three different markets with different prices and buyers. Unfortunately, the foreclosure market which is the entry level and lowest priced at an average of $84/SF is almost exclusively a cash market controlled by investors. The Y Gen tries to buy into this market, but they can’t compete with investors.

    I just think this recession was a perfect financial storm and is resulting in a new paradigm for everything including housing. No more is the focus going to be just the price of a property, but the overall cost of living and quality of life.

    So walkability, transportation, energy efficiency, taxes, maintenance and insurance costs are all becoming important. A family that can eliminate one car by living in a walkable neighborhood wth access to alternative modes of transportation can save about $9K a year. A family living in a High Efficiency Home, can save upwards of $200/mo on electricity. Take those two items alone and amortize them over 30 years and you are looking at savings in excess of $340K. Add to that the savings of using that money to pay down a mortgage and you are looking at savings of almost $500K over 30 years. Savings like that may get more Y gen to live in condos in central locations. I think you are also going to see more multi-gen housing as families combine.

    In Miami Dade about 10 years ago less than 25% of sales, were condos — now about 60% of sales are condos. More surprisingly, the increase in sales of over $1M properties is currently occuring in our condo market. That tells us that some of the wealthy home owners are beginning to downsize in style.

    This changing paradigm is causing people including Ygen to look at the cost of living rather than the purchase price. Buyers in SoFla positioned themselves for the past three years in rental properties, but now they are doing the math and realizing they can own for the same cost, so they are trying to buy again, but coming across obstacles with financing.

    I think once unemployment and financial situation is settled and people confidence returns, the real estate market in Miami-Dade is going to stabilize. I believe that like before, we are going to have another boom and like before, we are to have a housing shortage; and prices are once again going to rise. In Florida we have been seeing this trend since the 1920′s. But every market is different and what happens in South Florida may not happen in other parts of the country.

  • Ken

    Interesting post, Tinus. My guess is you are a single man w/ no kids? Perspectives change…

  • http://www.facebook.com/tinus.swanepoel Tinus Swanepoel

    Thanks Ken! You guess correctly, and yes, perspectives do change. I'm sure that when I have kids I will want to give them a home. Whatever “home” is, whether owning a property, renting a place, or living in an RV as the family drives cross country… okay, maybe not the last one, but things can change. Besides, I'm a little young to have kids right now.

  • http://www.facebook.com/tinus.swanepoel Tinus Swanepoel

    That sounds like a plan Doug!

    Go for college communities, beaches, and places near shopping centers. That's where I would go first. Near my friends, near great landscapes and near food and entertainment that doesn't require a 15+min drive with a car. Convenience is king, and Fun is the queen.

    Just my 2 cents.

  • http://www.facebook.com/tinus.swanepoel Tinus Swanepoel

    Thanks Jeff!

  • http://www.revealty.com/ Rebekah Whiteman

    Your article shows the effort and hard work you have put in. It highlighted a new angle and I think it successfully portrayed the attitude of the generation Y. Young people these days think and act differently from their parents and this attitude has also started affecting the real estate market. There are many young people who can’t think of staying at the same place over the years. For them buying a house is no more an option and succumbing to their demands new types of housing like lofts, live and office lofts etc are coming up in many areas of the country.

  • http://www.prometric.com/nmls/default.htm Carl D

    I agree, lifestyles are changing rapidly and renting makes more sense for many.

  • http://twitter.com/SellWithDeena Deena Kitchen

    Thanks for the insight!

  • http://www.activehomebuyers.net/mls Neil Ferree

    Nicely done Tinus. In case you're tracking such matters, Mike McClure provided the pointer to this post as an excellent, albeit, new reference source on a talk he is prepping for at the NAR show in the Big Easy in a couple weeks. Being a Boomer myself with 3 Gen Y's in my nest, your post and observations will make for good fodder at the family dinner table.

    The current ugly unemployment stats aside, given the national work force is pretty much 50/50 male/female and having noted that the “lifestyle” quotient need be considered as a predictor in the buy v. rent decision — I wonder if my 3 Gen Y women will have the same view as your male Gen Y counterparts?

  • http://twitter.com/DeniseHamlin Denise Hamlin

    Tinus ~ You make some good points, but I think you're a bit premature in your assessment of the situation. Let's get past the current problems in the economy and then debate this. Right now it's not just Gen Y that's not buying – It's not on the top of anyone's list! Basic economics will dictate who buys and when. When it makes good financial sense to buy then people will buy.

    Having said that, I'm really not keen on generalizations so I'm not going to narrow this down to Gen Y, but I do think that some young people may take longer to buy than in the past. That has more to do with the fact that they are slower to settle down, have children etc. I'll go along with you there that may impact home ownership rates. I still think though that basic economics will rule the day and young singles will buy if it's financially lucrative for them.