Low Home Ownership: Millennials Avoid Geographic Prisoner Status

2017-10-30T05:29:22+00:00 July 22nd, 2016|Categories: Economy|

An Associated Press article reports that the current US home ownership rate of 62.9% now matches its lowest level in 51 years, suggesting that a combination of rising property prices, high rents and stagnant pay have made it hard for many people, in particular millennials, to buy homes.

The biggest impact is currently on 18 to 34 year olds whose home ownership fell 0.7% to 34.1%. According to Trulla, the US added almost a million households the past year all of which were renters. And concurrent with that, they say home ownership has actually declined – even as the housing market has been recovering from the 2007 bust that triggered the the Great Recession. 

If one stops and analyzes that statement in its tracks – it telegraphs quite loudly – that many of the buyers of the “recovering” housing market have not been individuals – but rather – investors and management firms. 

According to the AP article, there are many official reasons for this.

  • One is that home prices have been steadily outpacing gains in average earnings. This has made it harder for first-time buyers to save for down payments, which delays the ability to purchase a home.

  • Another is that the median home sale price was $247,700 in June, which was up 4.8 per cent from a year ago, according to the National Association of Realtors. That increase is roughly double the pace of average hourly wage gains.

Even though mortgage rates remain at historic lows, these factors complicate the purchasing process for many would-be buyers.

Another factor which I began discussing after the 2008 economic collapse on Goldseek.com Radio (and I believe is a driving factor – especially now 8 years later) in the minds of millennials who were in high school or college when the bottom dropped out of the economy (and who saw their parents lose a lot financially) in many cases, not because of bad choices their parents made, as the media narrative would like us all to believe, but because of a financial system that fell apart because of politically expedient financial engineering which should never have been sanctioned in the first place.

A by-product of that financial engineering that I put forth was the concept of people no longer wanting to remain as “geographical prisoners” to their home. Especially when many were losing them as a result of circumstances that were outside their control and influence. This trauma I believe has played a significant role in shaping the attitude of many millennials – and other generations – about home ownership beyond the mere statistics that are reported today in these current articles.

Here’s a brief synopsis from my May 4th, 2010 Goldseek.com Radio report:

When the housing crisis began it was fashionable financial propaganda to blame those pesky sub-prime borrowers for the ills sweeping through the economy. Then lo and behold, the housing crisis spread into prime loans and jumbo loans until people from every economic class were being swept up in the credit collapse. Funny how prolonged unemployment and being a geographic prisoner to a house that cannot be sold, can turn you into an economic prisoner of the banks and credit card companies. 

When this crisis began, the banks and the government (the true causes of the crisis), blamed the sub prime borrowers. The banks and government successfully played the class warfare card by blaming the poor until they could no longer blame the poor. There was (and is) so much talk about banks giving loans to people who couldn’t afford them. Don’t forget, it was the government who urged, and in some ways, forced the banks to give endless loans. After 911 it was George Bush who urged everyone to spend, and Alan Greenspan who urged everyone to finance their homes with short term adjustable rate mortgages. Now those mortgages are blowing up. Just like government debt and deficits. And now sovereign debt is beginning to blow up.

Those earlier discussions about people wanting to avoid being a geographic prisoner to their home (I believe) is manifesting as one facet in the continual growth of the rental market – which is now punctuated by the lowest home ownership since 1965. 

For more people to be able to buy homes (never mind wanting to buy them), that is, assuming interest rates remain relatively steady – either wages will need to rise, or home prices will need to drop.

But those two variables – wages and home prices – will be much easier to modify – and change – than the attitudes about wanting to buy a home that have been formed and embedded in the psyches of an entire demographic who are still keenly aware of the collective trauma that remains from 2008 – and who have quietly adjusted their habits accordingly.