Housing the Echo Boomers - Next Big Real Estate Opportunity ?

Originally published on forbes.com on December 21, 2011.

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 Tim Smith blogs on the "Echo Boom", also known as Generation Y (Americans born between 1980 - 1995).  His most recent guest post indicated that Echo Boomers might not be that excited about becoming homeowners.  There are a lot of them and they will have to live somewhere, so there may still be opportunity in housing them.

     Seize the Next Biggest Financial Opportunity

Are you an investor in real estate?  Are you a real estate agent?  Are you a homeowner looking to sell?  Are you trying to rent a nice apartment complex?  If you have any interest in housing, you may have cringed when reading about the Millennial attitude toward housing.  However, whether Echo Boomers rent or buy, they will need housing, and there are 80 million of them.  In other words, recognizing their demographics and preferences will separate the winners from the losers and that has huge financial implications in a generation as large as the Echo Boomers.

Who Will Buy and Who Will Rent?

In the past, I’ve argued that single moms and females will produce the strongest demand for housing in the future.  Then a few articles I covered mentioned a different take: the new renter is probably a single mom.  However, single moms and females of the Millennial generation listed owning a home as a financial goal more than males, even though males are more likely to be homeowners (by a 7% margin).  Married Echo Boomers also reported home ownership as a financial goal (approximately 21% of Echo Boomers are married).  As this generation matures, I’d expect the strongest demand to come from these three segments of the Millennial generation.

Many single males stated that home ownership was not a financial goal.  A few of these male renters wanted to buy land and build their own home outside of the city (approximately 10-15%), while the rest seemed satisfied with renting.  Those in the real estate industry should be aware that renters are a profitable group, if you build housing that renters want.

Are there exceptions to these trends?  Of course, and if the Millennial generation sees its marriage rate increase, there will be a growing demographic to sell homes to.  In some cases Echo Boomers may opt to live with relatives or friends rent-free due to their economic circumstances.  But even the ones who lived with their relatives or friends told me that they planned to be independent soon.

What Will They Want?

    For now, most of Generation Y seem to want modest homes, the demand of which may be indicative of their young age.  But it might also represent a demographic shift against large housing that is often overpriced and unnecessary.  Because many Echo Boomers don’t have or make significant money, a small house offers the ability to save on energy.  Other traits of housing that Echo Boomers want:
            ·         Some Echo Boomers prefer to drive less or take public transportation.  This indicates that they would prefer housing that is close to work, school and social areas.  Keep in mind, that close housing will save them money so that they can afford other things in the area (an opportunity to attract businesses).
            ·         For apartments, modern designs with social areas are replacing old apartments (and this will continue to grow).  An example of this in terms of design, an example would be to replace carpet with hardwood floors.  Builders and real estate developers can also attract businesses that offer social areas, like coffee shops, to open near the area.
            ·         Since some Echo Boomers lack financial resources, always consider how your housing saves them money.  Is it small and efficient?  “This place will save you money on bills.”  Is it close to their favorite places?  “This place will save you money and time on transportation.”  Does it offer their favorite activities?  “This place offers a gym without an additional cost.”  Always create win-win situations – it communicates that you value your customers.

Time Will Be the Ultimate Judge

            While Echo Boomers may mature like older generations and buy houses in the suburbs, they may not.  Time will answer questions about the housing demand from the Millennial generation, and what type of housing they’ll prefer.  Either experts are right when they state that Echo Boomers are extending adolescence, or the zeitgeist of “making it” is changing for this generation.  For now, anyone with a financial interest in real estate should pay attention to trends and find ways to meet their consumers’ needs.  And best of all, you can win with the renters or the owners – you’re not stuck with one opportunity

Attitudes of Young Americans Bode Ill for Housing Recovery

Originally published on forbes.com on December 17, 2011.
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 I've been bugging a realtor friend to give me a guest post on what the effect of messing with the mortgage interest deduction might 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's previous 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.