First-time homebuyer rate falls, Millennial homebuying myth shattered
If Millennials were really coming back to the real estate market, first-time homebuyer percentages would not be near three-decade lows and falling.
Have you noticed that many financial media reporters write stories about what their sponsors want to be true without any facts in support? I understand the urge for self preservation, and even the desire to tell people what they want to hear, but it doesn’t improve the credibility of the financial media when reporters fabricate stories about trends and developments that don’t in fact exist.
MOPE (Management of Perspective Economics) is the false belief that economists and the media can stimulate economic growth and activity by convincing the public the economy is vibrant when it’s really not. This erroneous idea (plus the innate desire to please others) drives most reporting in the financial media.
Some reporters promulgate financial myths because they feel compelled by their employers to pander to advertisers. Some spout nonsense because they believe they must stimulate the economy through managing consumer sentiment. Some simply pander to readers by telling people what they want to hear.
Whatever their motivations, the financial media promoted a variety of completely bogus fantasies as if they were an accurate reflection of reality.
Shame on them.
In 2012 the financial media promoted the deleveraging myth. When economists think about deleveraging, they envision people who got a little overextended tightening their belts and paying back their loans. This collective belt-tightening causes the economy to suffer because money that people previously spent buying goods and services is instead diverted to interest and repayment of debt.
This conventional understanding may apply to some small sub-group of distressed borrowers, but the housing bubble created a much larger group of Ponzis who couldn’t possibly pay down their debts even if they wanted to. That is the bitter reality of deleveraging that banks, economists, and the federal reserve don’t want to face. Of course, this didn’t stop the financial media from regaling us with stories about Americans digging their way out of a hole.
In 2013 the financial media touted the foreclosure recovery myth. The idea here is that Americans prevented foreclosures on their personal residences by catching up on back payments and curing their delinquencies. The motivation for this myth was purely to make people feel good about something they didn’t do. A collective Kumbaya and fake praise based on a lie people want to believe.
Did Ponzis suddenly start making more money during the recession and pay it down with wage income. No. Did anyone liquidate their assets to pay off debt. Not very many. So what is the real source of deleveraging?
Bank write offs.
Nearly all the mortgage debt retired over the last several years was written off by banks.
In 2014 the financial media fostered false hope of a robust housing recovery with the boomerang buyer myth. The real estate industry pinned their hopes on the appearance of large numbers of boomerang buyers, former owners who qualified for mortgages again. The common narrative was that these buyers would return in large numbers and provide a huge influx of demand that would put homebuilders back to work and generate commissions for realtors. It didn’t happen.
Back in 2012, I wrote that the Pent-up demand from boomerang buyers may not materialize. The federal reserve studied this group in great detail, and they noted that only 10% of borrowers with a prior serious delinquency regain access to the mortgage market within 10 years of their default, yet despite this fact, out of desire for it to be different this time, housing analysts and the financial media promulgated the idea that 50% or more of these buyers would return.
After two straight years of bitter disappointment, it would be logical to assume the financial media would quietly drop this failed meme. Perhaps a few ambitious reporters might even write a story explaining why the idea failed (it failed because only about 10% will ever come back just as the federal reserve study pointed out). A really ambitious reporter might even discuss why the fantasy of the Boomerang buyer appeared when there was absolutely no evidence that these people would come back. A probing exposé that calls out the shoddy reporting of others rarely gets past an editor though (fortunately, I don’t have an editor).
Millennial Buyer Myth
A parallel false hope of the real estate community is the Millennial buyer myth. For 2015 the false hope and wishful thinking was centered on Millennials, those born approximately between the early 1980s and early 2000s, who will soon become the majority of the workforce and the next generation of homebuyers.
The Millennials currently cope with excessive student loan debt, which is preventing them from buying houses. They are also delaying marriage, and they are not forming new households at the same rate as previous generations.
Most housing market analysts blithely assume Millennials will follow the same path as preceding generations once they have opportunity, but what if Millennials decide not to buy homes? Baby Boomers don’t want to think about that possibility.
Throughout 2015 the financial media has run stories about the resurgence of Millennial homebuying. (See: Are Millennial first-time homebuyers finally active? and Will Millennials be forced to rent for life? and Will Millennials move to the suburbs and buy houses?)
Last November I reported that First-time homebuyer participation hits three-decade low, a clear sign that Millennials were not buying homes. When any indicator hits an extreme value, it’s a safe bet that things are so bad that conditions can only get better; thus with a burst of wishful thinking, the resurging Millennial buyer myth was born.
Perhaps this story will serve to kill it.
Diana Olick, November 5, 2015
Housing is recovering in sales and prices, but one segment is stubbornly weak and getting weaker. The share of first-time buyers fell to the lowest level in nearly three decades, just 32 percent of all purchases, according to the National Association of Realtors’ annual profile of buyers and sellers. Investors are not included in the survey. …
“There are several reasons why there should be more first-time buyers reaching the market, including persistently low mortgage rates, healthy job prospects for those college-educated, and the fact that renting is becoming more unaffordable in many areas,” said Lawrence Yun, the Realtors’ chief economist. “Unfortunately, there are just as many high hurdles slowing first-time buyers down. Increasing rents and home prices are impeding their ability to save for a down payment,
there’s scarce inventory for new and existing-homes in their price range,
and it’s still too difficult for some to get a mortgage.”
This is another popular myth that refuses to die. (See: Despite industry spin, mortgage lending standards are not tight)
Millennial / First-time homebuyer participation worse than most realize
Consider just how bad the first-time homebuyer rate really is. If the usual participation rate is 40%, and if the current rate is 32%, that’s 20% below normal. [(40-32) / 40 = 20%] The first-time homebuyer participation rate needs to increase by 25% to get back to where it was [(40-32) / 32 = 25%].
If Millennials were really coming back to the real estate market, would first-time homebuyer percentages be near three-decade lows and falling?