Millennials seek suburban homes and SUVs

Recent data shows several consumption patterns among Millennials:

Generationally speaking, the stereotype of millennials as urbanites falls flat when it comes to homeownership. The Zillow 2016 Consumer Housing Trends Report found that 47 percent of millennial homeowners live in the suburbs, with 33 percent settling in an urban setting and 20 percent opting for a rural area.

Millennial homebuyers do wait longer to buy a first home than did previous generations. But they are skipping the traditional “starter home” and buying larger homes that were previously considered the norm for “move up” buyers…

Erich Merkle, an economist with Ford, says that as millennials cross the threshold into family life, they’re buying large SUVs.

“We expect them to carry on as they age with three-row SUVs and likely go larger simply because they need the space to accommodate children that are now teenagers or preteenagers,” he said.

That combination so emblematic of 2000s consumption – the suburban big home (a McMansion?) and SUV – may be back. On one hand, perhaps this is what millennials are used to or they think they should aspire to. On the other side, consuming these objects can draw criticism. Did Americans learn anything (housing bubble, reliance on cheap oil)? Do they understand the consequences of these purchases (a commitment to sprawl and consuming more than they need)? How could they make such uncool choices (compared to dwellings in hot urban neighborhoods or acquiring cooler vehicles)?

Perhaps this suburban driving culture will continue for a long time…

It is hard to find the “perfect home”

A list of homebuying myths ends with this one:

Myth #6: You bought “the perfect home”

According to a survey by Nerdwallet, 49% of homebuyers had regrets about their home-buying process.

“There are regrets that you can live with and there are regrets that you really want to avoid,” Manni says. “It’s completely normal to regret not having enough space, but you don’t want to regret things like your mortgage or interest rate.”

Manni encourages homebuyers to do their research on home location and take the time to know your mortgage options to avoid feeling stuck down the line.

“Your dream home is not going to be ready and waiting for you — you’re going to have to look,” Manni says.

Regrets can be big or small and making such a large commitment – financially as well as in many other areas – can amplify such concerns. At the same time, what leads people to expect a perfect home in the first place?

A better way to approach this may be to uncover at which point homeowners turn from a twinge of regret to something that pushes them toward a new place to live. What is the tipping point?

Higher home values may be good for many yet reduce the number of new homeowners

Rising home values are often seen as a good thing as homeowners dream of seeing a strong return on their housing investment. Yet, these higher values may just discourage renters from buying a home:

Renters are avoiding buying a home mainly because house prices are soaring. Just 52 percent of renters surveyed in a National Association of Realtors quarterly report said they feel now is a good time to buy — that is down from 62 percent of those surveyed one year ago…

More owners, 71 percent, think selling is a good idea today, up dramatically from 61 percent a year ago. There is so little supply on the market that homes are selling at the fastest pace on record. Great, if you’re a seller, but it begs the question: Why are so few homeowners listing their homes?

“They’re either content where they are, holding off until they build more equity, or hesitant seeing as it will be difficult to find an affordable home to buy,” said Yun. “As a result, inventory conditions have worsened and are restricting sales from breaking out, while contributing to price appreciation that remains far above income growth.”

Affordability is the culprit for both current renters and homeowners. Less than half of all respondents said homes are affordable for buyers. Of course, there are regional differences, with more saying homes are affordable in the Midwest and less saying so in the West.

The housing market often swings back and forth between buyers and sellers. Yet, we have several longer-term problems at play here:

(1) New homeowners having difficulty entering the market (coming off a burst housing bubble with fewer financial resources, millennials with other financial commitments, etc.).

(2) Perhaps shifts in how many younger Americans want to buy the same kinds of homes that are available (though some of this may be overblown).

(3) Housing prices for starter homes or entry-level properties that are too high in several high-demand metropolitan areas (Bay Area, New York City, southern California).

(4) Available credit and homes for those with more financial resources but fewer options for those with less.

In other words, the normal swing of the pendulum between buyers and sellers might not be enough to put the housing market back to rights.

Most millennials want to buy a home but we keep findings ones who don’t want to

Here is a recent story that both includes survey data that most millennials want to purchase a home yet leads with one who does not want to do this:

Niederkorn, a member of the millennial generation, currently lives with his parents but said he plans to be a renter for life and never buy a home. He craves the ability to pack up and go, he said, and doesn’t want to be saddled with a home loan, property taxes or homeowners associations fees. And though this may put him in the minority — an Apartment List survey of about 24,000 renters nationwide released in May found that 80 percent of millennial renters want to buy a house or condo sometime in the future — it does raise some interesting questions about the American Dream and the place of homeownership within it.

The historical overview of homeownership that follows is helpful but it is a weird premise: the cited data suggests there is a clear pattern but there is this one suburban guy who is going another direction. Do we follow the data or the single story?

On a related note, journalists are fascinated with millennials and what they may or not do, including buying a home. When I see such stories, I wonder if this is masking three different purposes:

  1. This is just another way to suggest there is a trend (journalists are always looking for trends).
  2. Journalists really hope millennials usher in major changes to American society.
  3. Younger journalists often live in big cities and want other millennials to affirm their choices.

Homeownership and suburban living is a hot topic in this area: will millennials follow their parents to the cookie-cutter suburbs and live boring lives? (There is often an evaluation of the suburbs included in the story.) I haven’t seen many articles where the conclusion is that many or most millennials will end up in the suburbs.

Closing on a house feels like…

Based on my limited experience and scholarly interests, here are some possibilities for what closing on a house can be:

Fulfilling the American Dream of homeownership. On the positive side, owning your own property and providing space for a family. On the less positive side, establishing your class status.

-Agreeing to a sizable debt to a large financial institution. On one hand, you probably couldn’t buy that home without a long mortgage (thank goodness for the 30 year loan). On the other hand, you don’t really own your property for a long time and those mortgage payments just keep coming. Overall, a home is going to be the single largest investment/outlay of money for many.

-The end of a complicated process. I’ve seen several surveys suggesting many Americans dislike applying for mortgages (here is one example). It is one of those things in life many people don’t do more than a few times and it often requires a lot of paperwork (both to submit and to read).

-The start of a new era. (1) Even with the mobility of Americans and our relatively low attachment to places, we get used to the physical structures in which we live. (2) A new home often means new social arrangements as we navigate changing families and new neighborhoods and communities.

-Keeping another house occupied. Obviously, no one wants a lot of vacant properties – with lots of discussions of this in recent years involving foreclosures and particular locations like Detroit – but we can push the idea further: just how long will American homes last? Will post-war suburban homes be worth rehabbing when they hit 40-80 years of existence?

-Helping a community continue to exist. With your home purchase, you are making a commitment, if not socially (you could just retreat to the private world of your new home), then at least through your taxes. Even if we put too much emphasis on high population growth as a sign of success, communities can’t afford to lose too many residents and taxpayers.

Claim: Millennials can’t buy a house so they are serfs

Joel Kotkin makes a bold claim regarding the inability of millennials to purchase a home:

Like medieval serfs in pre-industrial Europe, America’s new generation, particularly in its alpha cities, seems increasingly destined to spend their lives paying off their overlords, and having little to show for it.

No wonder that rather than strike out on their own, many millennials are simply failing to launch, with record numbers hunkering down in their parents’ homes. Since 2000, the numbers of people aged 18 to 34 living at home has shot up by over 5 million…

It’s time for millennials to demand politicians abandon the policies that have enriched the wealthy and stolen their future. That means removing barriers to lots of new housing in cities and, crucially, embracing Frank Lloyd Wright’s notion of Broadacre Cities, with expansive development along the periphery.

These new suburbs, like the Levittowns of the past, could improve people’s lives, while using new technology and home-based work  to make them more environmentally sustainable. They could, as some suggest, develop the kind of urban amenities, notably town centers, that may be more important to millennials than earlier generations. One thing that hasn’t changed is the demand for affordable single-family homes and townhomes. But the supply is diminishing—those under $200,000 make up barely one out of five new homes.

This is a familiar argument for Kotkin: millennials really do want to own homes in the suburbs – like many other Americans since the early 1900s – and economic policies limit their opportunities.

But, this argument is still overstated in its claim that millennials are serfs. Kotkin gets at a deeper question: is homeownership essential to the American way of life? More specifically, a suburban home in a nice community? There is much in American history to suggest that owning land and a home is key, even if it isn’t a right. Yet, does it necessarily have to always be part of American life? Could Americans decide that they value other things (and not be forced away from homeownership by forces outside of their control)?

Trying to predict the 2017 housing market

This summary of predictions for housing in 2017 includes 17 different estimates from various groups. Here is the one I’m most interested in:

Most observers expect home sales and prices to moderate in the coming year. They say suburbs will make a comeback while the days of low mortgage rates are over.

Suburbs will make a comeback you say? Perhaps there will indeed a Donald Trump effect for suburbs. Here is one more specific suggestion that might contribute to this:

The percentage of people who drive to work will rise for the first time in a decade as homeowners move farther into the suburbs seeking affordable housing.

Cheaper gas probably doesn’t hurt either.

Looking through these 17 predictions, few explicitly apply to suburbs. Most are about two things: millennials (with some help from baby boomers) are driving the housing market and there will be a slow rise in housing values.

One bonus summary statement:

One prediction you can always count on: No matter what’s happening with the economy, NAR is always going to say it’s a great time to buy. Its fourth quarter Housing Opportunities and Market Experience survey found that 70 percent of people say now is a good time to buy a home. NAR also predicts the rate on a 30-year fixed mortgage will rise to 4.6 percent by the end of 2017.

Perhaps there is one prediction missing: will the homeownership rate rise after dropping in previous quarters?

And who is going to check to see if these predictions for 2017 were successful?