Christopher Habig, 25, and Anne Weingarten, 58, don’t know each other, but they represent two sides of a perplexing new problem that could roil the housing market in years to come. Back in the fall of 2009, Habig, a marketing consultant in Indianapolis, was on the verge of buying a home with savings and mortgage financing after graduating from Butler University.
But the deal fell through at the last minute, and Habig says now, “Honestly, I have zero regrets about it.” Though he once viewed home ownership as part of the American dream, the 20-something has had a change of heart. “I view houses and being a homeowner as more of a liability than rental expenses at this point, because I understand now that buying means sinking a lot of money into upkeep and mortgage payments without a guarantee the investment will pay off.”
Habig’s sentiment is one reason economists say the housing market may hit another wall. Weingarten and her husband have lived in their Syosset, New York, home for 34 years and plan to sell it some time during the next three years to retire to Florida. After years spent putting work and money into her home, Weingarten says she’s hopeful that in a few years, the housing market will pick up “and there will be a buyer when we need one.” But some experts say that the Weingartens and their contemporaries may be headed for a big disappointment when the time comes. Just as the housing market is beginning to emerge from a five-year crisis, experts are beginning to worry there will be a glut of baby boomer homes on the market, with few 20 and 30-somethings willing to buy.
By 2030, some 26 million baby boomer households expect to sell their homes and retire, according to a recent Bipartisan Policy Center report. Meanwhile, the numbers of Americans in their late 20s and early 30s angling to buy homes has slipped significantly over the last decade and even more so in the wake of the housing bust.
Nine percent of 29-to-34 year olds got a first-time mortgage between 2009 and 2011, down from 17 percent a decade earlier, a recent Federal Reserve study showed. In 2011, people 25-to-34 years old made up 27 percent of all homebuyers, down from 33 percent in 2001, according to the National Association of Realtors.
A Structural Problem at Work
Josh Rosner, managing director of Graham Fisher & Co., says this mismatch is a structural problem many housing analysts are missing in the hype about home prices and home sales turning upward.
“The largest impact of the most recent housing crisis will be felt over the next 19 or 20 years as baby boomers retire with less equity in what has historically been their largest savings and intergenerational wealth transfer asset, and younger populations are not really able to replace that demand," Rosner said. “This is the first generation in modern American history to be imbued with the notion that housing prices don't always go up, while at the same time they're saddled with $1 trillion in student debt and tougher lending restrictions. I expect, going forward, we'll see a very different relationship between younger populations and homeownership for those reasons."
Aside from lessons of the housing downturn, younger buyers face tighter mortgage lending rules, an uncertain job market, and rising levels of student debt, economists say. “If the housing bust had never occurred, a lot more young people would have the ‘homeownership at all costs’ attitude that was fairly common in 2005 and 2006,” said Greg McBride, a senior financial analyst at Bankrate.com.
For freelance writer Jess Harris, 33, witnessing friends and peers buy homes and shortly thereafter find themselves underwater was enough to lead her and her new husband to continue renting a San Francisco apartment until they can save enough to buy a house without a mortgage. Their financial adviser told Harris and her husband that they are on track to afford a home in 10 to 15 years. “Having a home loan terrifies us,” Harris said. “We’ve just seen and heard from too many friends who are just upside down in their houses, struggling with home loans, and have to either rent them or walk away from them. So even though we would love to buy a house, it just makes more financial sense to wait.”
Some housing analysts say it’s too early to judge whether the dearth of millennials jumping into the housing market will create any major housing market turbulence. “There could very well be an issue with whose going to buy the houses baby boomers are looking to sell,” said Celia Chen, an economist at Moody’s Analytics who studies housing. “But even though a lot of young people are jaded right now about homeownership, I still think the lure of owning a home is too great in the end,” Chen said. “I’ll bet that as this generation of twenty-somethings hits their mid-to-late thirties and starts having families, they’ll be looking to own a home.”
In the meantime, there are a few ways the market can correct the mismatch between boomers selling and young people staying on the sidelines, Chen and McBride said. If this trend erupts, boomers would cut their selling prices and builders would respond by constructing smaller homes for younger families, Chen said. And according to McBride, foreign buyers and investors could play a key role in keeping the housing market humming. “Attractively-priced real estate is not limited to U.S.-buyers…. Somebody is going to buy those houses. Even if it’s not 28 and 29-year old Americans, it’s investors from Brazil, China or somewhere else around the globe.”