From NAHB
The housing market is about to see a major youth infusion from members of Generation Y moving into households of their own, but what kind of homes they will want or be able to afford are among the open questions that will be especially challenging for established builders who may be ill-equipped to respond to the magnitude of the changes likely to characterize the recovery period that lies ahead.
Turning the tables on young men, young women will be the demographic group to watch, as they come to the housing market better educated and with higher paying jobs than their male counterparts.
In an NAHB webinar on June 30, James Chung, president of Reach Advisors, cited some demographic statistics about the U.S. population that ought to have an especially upbeat ring in the ears of the developers of multifamily rental properties. However, he cautioned that the dynamics of the marketplace will be dramatically different.
“The demographic winds have clearly changed for residential real estate,” Chung said, “from massive tail winds to massive head winds ahead. The good news is that multifamily still has some tail winds ahead after the storm subsides, much more so than other sorts of real estate, but the wind in the sails will be different from the past.”
Less Money to Spend on Housing
Nobody quite knows for sure how the emerging economy will color the behavior of consumers, but as the U.S. population begins to get back on its feet financially it is unlikely that typical housing consumers will have the wherewithal they once had to spend on housing.
In terms of household income, statistics from the Census Bureau depict a decade in which the top 10% captured 50% of all U.S. earnings and the top 1% landed 25%, he said. In inflation-adjusted dollars, from 2000 to 2008 incomes were down for every age group up through the younger half of the baby boom, those aged 45 to 54, who saw their median income plunge almost 12%.
The younger baby boomers, the large majority of whom are well-established home owners, will be able to soften that blow by falling back on healthy amounts of home equity, according to Chung. But that won’t be the case for Generation Y members, who have feet planted in both the 15-to-24-year and 25-to-34 age groups, both of which experienced a decline in median household income in the 7% to 8% range through 2008.
Born roughly in the 1980s through 1990s, members of Gen Y had actually been spending more than prior generations at their age even though they had less income than those who had preceded them, Chung said. But their high-spending ways began fizzling out with the onset of the recession, he said, as the subsidies they had been receiving from their parents started “shrinking fast.”
The nation’s current job situation remains at detrimental levels for housing, Chung reminded his audience, with roughly 20% of the workforce out of work, underemployed or so discouraged that it has dropped out. Returning to full-employment will need some time, maybe not as long as the decade or more the Japanese took to recover following the collapse of their financial institutions in the 1990s, he said, but that scenario is a more likely outcome for today’s precarious U.S. economy than the rapid job creation that used to occur in the aftermath of recessions.
What young women are able to earn in the period ahead and how well they fare on their career paths will have implications for housing, he indicated, perhaps enabling them to pass more quickly than expected through the upper end of multifamily rentals into the first-time buyer market.
The amount of support that prospective renters and buyers receive from the economy remains a major unknown, but Chung laid out some demographic numbers and market research on Gen Y that builders should be digesting now.
