Mon May 19, 2014
3 Million Young People Missing From Housing Market? It's Everyone's Problem
Originally published on Mon May 19, 2014 12:43 pm
MICHEL MARTIN, HOST:
This is TELL ME MORE from NPR News. I'm Michel Martin. We'd like to begin the program today by talking about young people and housing. Buying a home used to be a major rite of passage of adulthood. But now more young people are not only putting it off, they're also moving back home with parents. According to U.S. Census data, the rate of homeownership for young adults has declined in the past decade from 43.6 percent to just over 36 percent today. And that could have serious implications for the wider economy. We wanted to talk more about this so we've called NPR senior business editor Marilyn Geewax once again. Welcome back, Marilyn. Thanks for joining us once again.
MARILYN GEEWAX, BYLINE: Hi, Michel. Great to be here.
MARTIN: And for additional perspective, we've also called Lisa Sturtevant. She is the vice president for research at the National Housing Conference. Lisa, thank you for joining us as well here in Washington, D.C.
LISA STURTEVANT: Thank you.
MARTIN: So, Marilyn, let me start with you. By the numbers, it seems that the housing market is strengthening. You've reported on this. But you were talking with realtors who came to Washington last week for a conference. There's an underlying concern underneath that.
GEEWAX: Yes, I spent a lot of time last week with thousands of realtors who were in town and I listened to their economists. And here's the big picture - it was a very tough winter. A lot of snow. People didn't want to go out to an open house when there's three feet of snow in the driveway. So that was a bad period. But now that it's warmed up and the snow is melting, things really have turned up. And it's looking like a pretty good year for housing, you know, prices are up, sales are looking reasonably strong, housing starts surged a lot in April. So it feels pretty good. But then, if you dig into the numbers and separate it a little bit, what you really see happening is it's the higher-end of the market that's doing well - vacation home sales are good. And the typical new home price is now about $290,000, which is the highest...
MARTIN: That's the average new home price?
GEEWAX: Yes, the median price is up to $290,000. And that is the highest ever recorded. So in other words, what's happening is the homebuilders are aiming for that - the first home being a pretty expensive home. You know, this new home is for people who have really high incomes. And that's a tough problem if you're a younger person. The statistics on that were much more dismal. They're finding that they're about - they call them the missing young people. They're missing because they're not in apartments. They're not buying homes. There are about 3 million missing young people. And where they seem to be is in mom and dad's basement. They're just staying at home with their parents.
MARTIN: So, Lisa, pick up the thread here if you would - is the issue here that young people are not making enough money to get into the market? Is it that people with more money are bidding up the cost of the homes? What's going on here?
STURTEVANT: Yeah. No, I think you're exactly right. I think, you know, there's problems on the demand side for young people, as we can talk more about. They're entering into the labor market in one of the worst economies that we've had in decades. And so - and not only that, as we've come out of the economic recession, the number of jobs that are being added and the types of jobs are frankly different than what we'd lost.
The jobs that we're adding are lower-wage jobs. They tend to be in sectors that pay a little bit less. And so they're faced with lower job prospects, and they're also saddled with higher debt in the form of student debt. And then out on top of that, the demographic factors in that they're delaying getting married. And so when you have only one income in a household instead of two, all of those things make it more difficult to buy a home.
MARTIN: Well, you know, but we actually reached out on Facebook 'cause we wanted to hear what other people's experiences were. And let me tell you, a lot of people would like to talk about this. We got hundreds of responses on this question on Facebook.
And I just want to read one of them from somebody who doesn't have any of those things that you talked about and still feels that he's priced out of the market. We heard - here's Mark Hassleburg (ph). He's 30 years old. He lives near the San Francisco Bay area. He is married. He and his wife both have steady jobs. Together they make - about $95,000 last year. But they found they can't afford to buy a home anywhere near where they work. Here's what he had to say.
MARK HASSLEBURG: Owning your own home is definitely at the top of our list of priorities, so to speak. Or at least so we thought, until we started looking into it more, especially in the town and area we live now, which we love. It's a great neighborhood. We've got friends and family close by. But to find something that we could actually afford, we'd have to move about four hours away.
MARTIN: So I think - so people will hear that, and they'll think, is this lifestyle; that young people aren't willing to make lifestyle compromises? Or is it something else?
STURTEVANT: No, I'm so glad that you raised this point. I'm glad to hear that comment because in the places where jobs are the best - in places like San Francisco and Washington, D.C. - what we're facing is a supply problem. And so when you're faced with a place that constrains supply through zoning, through land-use plans, reducing the amount of housing that comes onto the market, that also has this impact of keeping prices high.
MARTIN: If you're just joining us, we're talking about why so many young adults are staying out of the home-buying market. Our guests are Lisa Sturtevant of the National Housing Conference. That's who was speaking just now. Also with us, NPR business editor Marilyn Geewax.
Let me play, Marilyn, for you a clip from Jessie Hunter (ph). She's 26 years old. She lives and works in Austin, Texas. She has stable work in the health care industry. She says she can't get the money together to buy a house. Here's part of what she told us.
JESSIE HUNTER: I have enormous student loans that essentially comprise a month's rent every month, and it eats up all of my disposable income. I'm not really able to save any money, even though I've got a fantastic job.
MARTIN: So, Marilyn, what about that?
GEEWAX: That's exactly what the economists are telling the realtors; that this student debt problem is just a tremendous overhang on the market. This year, in the class of 2014 - congratulations, kids. You're the most indebted in history. Seventy percent - 7 out of 10 kids coming out of college - have debt. And right now, that's running at about $33,000 per person. So that's - even after you adjust for inflation, that's twice what it was 20 years ago. So people who were graduating the '90s, they could pay off that debt in a few years - maybe five years - and then you could start to move on to buying a home.
But now, you know, really, young people are looking at debt overhang of - you know, they're well into their 30s before they can even start to feel their way out of that pile of debt. And then you've got to start to save for that first home. So it delays the whole process, and it makes people reluctant to get married. Who wants to marry into somebody else's debt? Now you've got twice as much debt. It's really delaying the whole process that leads to adulthood.
MARTIN: I want to ask each of you whether this is a policy issue, or is this something that the country needs to worry about as a policy issue? Or is it, in fact, a matter of people making different choices given the circumstances that they are presented with?
And I just want to read this from Christian Moore (ph), who says he's 27 years old. He says, I gross well over the median American, but I'm not even close to homeownership because he graduated. He had student loan debt - about $25,000. He's paid - he says he's paid a lot of it down. But he's making payments on a modest car. He says, but look, I take vacations. I see concerts. I budget. So he's not whining. He's not seeing - he says, I'm not whining, but look, real estate prices where he lives are high. The median home price for a two-bedroom home is $257,000, according to Zillow. So he says, look, if I save 20 percent of my net income, I could afford a 20 percent down payment and have little or no nest egg in case of an emergency. And he says, look, to sum it up, I think me and a lot of my peers would rather have a meaningful - meaningful life experiences than save up to buy a home.
MARTIN: So how do you - how do - how do you hear that?
GEEWAX: Well, I...
MARTIN: I mean, I think some people will think he's whining. I don't think he's whining. He's just saying...
GEEWAX: I talked to some of the realtors about that and said, you know, what about when you talk to young people? What are they telling you? And they said, you know, one of the things they want to do is to be - to enjoy their lives a little bit, to not just constantly feel this sense of debt burden, where if you have a student debt and you have a car loan and then you're going to take on a mortgage - a lot of them are like, hey, you know, this is all I care to really deal with. I want to still have some life.
And the other thing is they want to be able to chase a better job. So they don't want to have that sense of roots because what if something better opens up in another city? They want to be able to chase a better paycheck. So this one realtor I was speaking with from the state of Washington said, it's really tough to get younger adults to commit to owning a home because they can't take the psychological burden of more debt, and they want to be free enough to move on to greener pastures.
MARTIN: Well, so one can understand why realtors would be very interested in having people, you know - the market continuing to turn over because that's how they make their money. They make money off the transactions. But should the rest of the country care about this? I mean, is this a problem to be solved or just a circumstance that's interesting?
STURTEVANT: No, I think that's a great question. And I think - I'm glad that we're talking about the fact that this is a preference among a lot of folks in this generation. I think there's one thing to consider is that home ownership in America is the way that wealth gets accumulated. It's the primary means by which we accumulate wealth. So if that mechanism for this generation to accumulate wealth isn't working the way it has in the past, I think it opens questions about how we treat renters and their prospects for accumulating wealth over the long-term so that we don't increase this divide between wealth accumulation, not only by income group, but now - but by generation.
MARTIN: Did - Marilyn, go ahead.
GEEWAX: Well, I wanted to say on this issue is - speaking for us baby boomers. There are a lot of people who think, hey, I got mine. I'm cool. I bought a house young, and I've, you know, been paying on it so everything's set. But to sell my house - someday I will want to retire, eventually. And I will probably want to downsize my house. Who's going to buy it?
So if you baby boomers are thinking, hey, we're cool. You're kind of not because you need to have that - the chain moving along - the kind of the conveyor belt where somebody who's 29 buys a small home, and then they move to the nicer one. And eventually they can buy my house, and I can retire and have some savings from that sale. If you break down this chain, it can affect every generation. We all have a stake in how younger people are doing.
MARTIN: Is there - the economists that you spoke with at the realtors conference last week have a perspective on how this issue should be addressed? Because on the one hand, when young people - people aren't willing to move for opportunities. People are critical of them. I mean, it seems like young people are being criticized no matter what they do. I mean, so do they have a sense from a policy standpoint if there's something that they think should be different?
And we also haven't had time to mention or dig into the whole question of underwriting standards because a lot of people are saying that the underwriting standards have gotten very difficult for new buyers to overcome. We don't have time to really dig into whether that's true or not. But what's your take on it, Marilyn?
GEEWAX: Well, keep in mind, these realtors were here in Washington - not a coincidence. They were here to go to the Hill. They were talking with their elected officials. And really where they're looking for some kind of relief is some of the lending standards they feel are just really too high. There's been a reaction to what happened when things were too loose.
But now it's really tough on, especially minorities - a lot of Latino and African-American families who had a rough time. This was a really bad recession. So maybe your credit score got beat up pretty good in 2008 and '09 when you had to live on credit cards to get by. Maybe now you're working again - actually, you're a good risk, and you have a family. You want a home. But that credit score that's still dragging over from a couple of years ago is still haunting you. So they want help with that.
MARTIN: Marilyn Geewax is senior business editor at NPR. Lisa Sturtevant is the vice president for research at the National Housing Conference. They were both kind enough to join us in our Washington, D.C., studios. Ladies, thank you both so much.
GEEWAX: Good to be with you.
STURTEVANT: You're welcome. Transcript provided by NPR, Copyright NPR.