Monday, September 1, 2014

Will High Gas Prices Slow Housing Demand From Millennials?

Originally Published on on March 7th,2012
Here is another guest post fromTim Smith who writes about echo boomers (also known as Millenials and Gen Y), Americans born from 1980 – 1995.  He has previously appeared here with pieces on how business can connect with echo boomers and their attitudes towardhomeownership and education.
As gas prices approach $4 a gallon again, some may wonder if we’ll see another decline in the housing market.  The largest future consumers of housing will be Generation Y, a massive generation of 80 plus million members.  While Millennials may seem to be the next real estate opportunity, $4 a gallon gasoline will create a major encumbrance for this generation.
As I noted in a previous article on Forbes, regarding Millennial attitudes toward housing, “The lack of assets isn’t the only encumbrance to housing: Echo Boomers value education, people and leisure more than other American generations.”  The first major obstacle of housing demand, especially with rising gas prices, from these consumers is their light wallets– a year ago, 90% had fewer than $1500 in wealth.  Even with an improvement in employment prospects for Generation Y, they still are seeing shrinking wages.  How can a demographic save for a home when they face dismal employment prospects and see their wages shrink?  They can’t.  Now consider what this same demographic will do if they are seeing a major expense (gasoline) rise?
When people plan to buy a home, many look at their current and future expenses.  If a major expense, such as gasoline , is rising, they may delay any big purchase – such as a down payment on a home.  Customers, of all ages, did this while I worked for Wells Fargo.  They asserted that major expenses were delayed as they saw current expenses rising (psychologists might call this expectations adjustment).
Another obstacle that is growing with high gasoline prices to the housing demand increasing from Millennials is the growing education bubble.  As Millennials put more and more money into education, they aren’t experiencing the results in their wallets.  Not only are they seeing declining wages (even if they’re educated), but many of them have majorstudent loan debts that cannot be eliminated in bankruptcy.  This means that as Millennials see higher gas prices at the pump, they still will be forced to pay off their student loan balances, as that is a fixed expense.
Of course, some of these Millennials may decide to not repay theirstudent loans.  But by doing so, they remove themselves from the world of credit – meaning that in terms of buying a home, they’ll have to pay cash.
With the costs of gas and education rising, along with healthcare and shrinking wages, Millennials face a dismal economic outlook.  After working with customers of all ages who were planning to buy a home, one correlation was almost always one: people buy homes when they expect their financial future to be brighter.  Hopefully, for those in the housing industry, Millennials aren’t depressed about high gas prices.


You can follow me on twitter @peterreillycpa.

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