Boomers and older cohorts own more than 60% of the residential real estate in this country.* Yet they make up only a third of the population. These people clearly drank the Kool-Aid that owning a home is a pillar of the American Dream. Perhaps Boomers even manufactured the Kool-Aid, for home-ownership is such a fundamental value.
The next generation, the Millennials, are postponing the aspiration to become homeowners, forging new paths for their American Dream.
OZZIE AND HARRIET MEET THE INTERNET
In previous blogs we observe that the “Ozzie and Harriet” style homes that Boomers favored are ill-suited to modern demographics. Millennials are marrying later, if they marry at all, living closer-in, and having smaller families. Boomers ignore these demographic trends at their own peril, because they must sell their large, “Ozzie and Harriet” manse to this next generation.
But, there is an even more unsettling issue for Boomers.
Nobel Laureate Robert Shiller observes that in ten years time, there could be another housing boom or bust. In a speculative article on the co-movement of house values, mortgage costs, and interest rates he observes a new, external factor:
“Culture changes- like those brought by the Internet- could also have a profound effect. When our social contracts are increasingly defined by social media, for example, the appeal of living in a permanent physical neighborhood could decline. We don’t really know. This is more sociology than economics.”
SEA CHANGE IN FINANCIALS
Shiller is conjecturing whether generational changes are underfoot. Supporting this viewpoint, the financial industry has noted a sea-change in rates of thrift and savings. According to Moody’s Analytics, people under age 35 have stopped saving. The Millennial generation has a savings rate of negative 2 percent, meaning that they are burning through their assets or going into debt.
The lack of savings is attributed to subtle factors, not simply to student debt or lack of jobs. One issue is that younger people say it is “too complicated” to learn about investment accounts, mutual funds, and IRAs. The other issue is that Millennials use their income for more experiential purchases. They express a priority to spend on travel, special events like weddings, reunions, and concerts, and, of course, eating out.
Harking back to Shiller’s speculation on housing trends, it is noteworthy that these experiential purchases- (vacations, travel, restaurants)- coincide with meet-ups, social contracts and social media. These are intensely social activities. The Internet may be the game-changer bringing about new needs. In the recent book, Aging in Suburbia, Chapter Six explores three different impacts that are fueled by the Internet. It is noteworthy that social experiences are trumping real-assets, including the older suburban homes so cherished by the Boomers.
WHO IS MIXING THE KOOL-AID?
So, looking forward, we need to ask not only who is drinking the Kool-Aid, but more importantly, who is mixing it?
Striving to get a 30 year mortgage, doing the lawn on weekends, and getting a home equity loan for the DIY addition may have a more limited cachet for the Internet savvy Millennials. For Boomers…well, they have been there, done that.
*Aging in Suburbia, Chapter One, p. 36.