Tax stuff I think is interesting. It is either copied from my primary blog on forbes.com http://www.forbes.com/sites/peterjreilly/ or stuff that I did not put there because being on forbes is a good gig and they have, you know, standards. Also some guest posts.
Wednesday, August 27, 2014
Attitudes of Young Americans Bode Ill for Housing Recovery
Originally Published on forbes.com on December 17th,2011
I’ve been bugging a realtor friend to give me a guest post on what the effect of messing with themortgage interest deductionmight be on housing price recovery. That might be the least of our worries, if this analysis by Tim Smith is correct. Tim blogs on Echo Boomers (Americans born between 1980 to 1995. My littlest echo, all 6’3″ of him, will be starting college in the fall.) Tim’sprevious guest post concerned the education bubble, which I think might burst, but he thinks will explode.
Homeownership? No Thanks, That Was Your Dream
Bernanke could cause mortgage rates to plummet to 1%. It wouldn’t matter. Obama could offer 10% back of the home value for every home purchase. It wouldn’t matter. Alan Greenspan and George W. Bush could keep yapping about the value of homeownership and how it’s the American dream. That wouldn’t matter either. Our leaders face a major shift in the housing market that few recognize: the Millennial generation (also called Echo Boomers, due to their massive size). The trouble with Echo Boomers is that few understand them and realize how different they think and act than other American generations.
I spent over five years working for Wells Fargo Bank NA, and the last year and a half of my career I collected data on Echo Boomers (specifically born from 1980 to 1993, a different range than other studies). Why? Because I couldn’t control who called and the legal data were already compiled by Wells Fargo (birthdate, location, et cetera). I recognized the opportunity I had to interact, study and assess everything I needed to know about Echo Boomers, all while seeing how they actually managed money. After all, people can say anything, but their bank accounts don’t lie.
Consider, for instance, that 90% of U.S. born Echo Boomers has less than $1,500 in assets . What type of home could be covered by a down payment of $1,500? Or even if Echo Boomers didn’t give the bank a down payment, how many financial emergencies could they face with $1500? If people have few financial assets, the likelihood of facing foreclosure increases.
But the Federal Reserve, politicians and banks seem to miss this about Echo Boomers because this is only the beginning of the larger trend. This generation doesn’t prepare. This generation doesn’t save. And this generation values fun over both. I know because the easiest rapport-building question to an Echo Boomer was, “So, what do you do for fun in your area?” Baby Boomers and Xers on occasion answered the question, while Echo Boomers always answered it. Even some in the media caught on this trend as seen in the origin of the phrase, “Generation Y works to live, not lives to work”. But homeownership requires planning and saving, even if a person places no down payment.
The lack of assets isn’t the only encumbrance to housing: Echo Boomers value education, people and leisure more than other American generations. Of the Echo Boomers I spoke with, 13% were homeowners, yet less than a third reported interest in owning a home someday (with female Echo Boomers wanting homes more than male Echo Boomers). They preferred graduate degrees, living in social areas (not suburbs) and freedom instead of homeownership. A few of these Echo Boomers will need a decade to pay off their student loans after which another large loan, like a mortgage, might lack appeal. And while suburbs seem to offer community and safety, they also add transportation costs with a lack of social diversity.
Finally, Echo Boomers question the importance of homeownership. Greenspan, Bush and others can claim that homeownership is the American dream, but if that’s true, it’s only a recent dream. I failed to find one reference to homeownership as the only American dream before the Baby Boom generation. And based on my many conversations with older Americans (from the Great Depression), owning a home was never their dream. Many wanted to own their own business, leave their kids better off, and find meaning and purpose in their life. None of that requires a home.
Even the Nobel prize winning economist, Paul Krugman, challenged the value of homeownership . What some real estate agents don’t tell anyone is that under some circumstances, homeownership never pays for itself (consider that an owner never recovers the loss from homeowner’s insurance, interest paid on a mortgage, home-maintenance costs, and the time that he or she worked on the home).
Make no mistake; our economy can recover without housing despite opposite assumptions . Americans can learn to produce more with less. Americans can learn to value the things that come for free. Americans can learn to live with more people instead of fewer. And frankly, that’s what I see us Echo Boomers already doing.