Janet Yellen warned that the weakness in the US housing sector could hold back growth for the remainder of the year. Many pundits are perplexed by the housing slowdown. Existing home sales in March fell for the seventh time in past eight months. Its not going to get much better. In a word, here’s why: Millennials.
Strike 1 – Millennials are just now in the midst of family formation. Existing home sales won’t improve until Millennials settle down, get married, and buy homes. However, just 26% of Millennials 18-33 are married compared to 65% of the Silent generation at the same point in their youth. Even though Millennials say they want to marry someday, they are waiting much longer than previous generations so it will still be several years before they could impact the housing market.
Strike 2 – Millennials are distinctly more cautious financially. According to a UBS Investor Watch Report, “the average millennial has 52% of his or her portfolio in cash, more than twice the 23% of other investors.” Millennials are hesitant to make big purchases and see buying a home as risky. Those that do buy are learning a lesson from their predecessors by purchasing homes they can afford. A report from the CFPB suggests that a trillion dollars in student loan debt is hindering Millennials from spending in areas like homeownership.
Strike 3 – Millennials have a different sense of the American Dream. The “sharing economy” has in roots in financial hardship, but the underlying driver of collaborative consumption is really a manifestation of a values shift. Cloud-based lifestyles allow Millennials to have access without ownership. The possession of physical goods is now sometimes seen as a hindrance, rather than an advantage in life. The same philosophy is extending to homeownership which necessitates putting down roots and making a long term commitment. For Millennials who have experienced the economic upheaval and high unemployment rates, renting offers the flexibility and the freedom to move around the country if new opportunities present themselves.
Let’s hope the underlying strength of the current economy isn’t entirely reliant on a rebound in housing.
~Mike Vidikan, @mikevidikan