Have We Lost An Entire Generation of Home Buyers?

I worry a lot.

This meltdown, crash, near depression or (insert your own apocalyptic adjective here) of our economy has got me wondering about the Y generation (you may call them millenials or echo boomers). I've been thinking for some time about the whole concept of our disposable society and the speed of change as it relates to home ownership. It has seemed to me that more and more there's a group of people out there who aspire less to have roots then to have an exit strategy.

It hit me in 2007 when I took a trip to Palo Alto to be a part of a California company's relocation to the Indianapolis area. I was a part of their town hall meeting when they were trying to emphasize the positives of their plant moving several thousand miles east. While one of the positives of the move was certainly housing affordability (Palo Alto is a rather ritzy end of the planet to call home compared to Indy), a number of the attendees were non plused. Yes, there was a lot of angst given that their lives were going to be uprooted. Yet, it was more than that. I got the sense from a number of their best and brightest that owning a home versus renting anywhere was an absolute 'who cares.' It wasn't that they didn't have motivation given the astronomical rent most of these people were paying to share a flat and a bathroom with several absolute strangers in their area. You would think that owning your own 1700 square foot home for HALF of what they were paying to rent with room mates would have appealed to them. It seemed that a number of them were simply not interested. These were bright , aggressive people many among them engineers and other highly educated professionals who had no predisposition other than owning a home was not a priority.

While that trip may have been the starting point, it's been out there a great deal lately and perhaps we 30 and 40 somethings are at least partly to blame. Our culture is more and more of the mindset that walking away from things when they wear out our interest. It's the norm rather than the exception. Spouses, jobs, personal property, economic responsibilities, pets - you name it. Any more if people are tired of it, out it goes. It seems that many of our current young adult generation has just skipped the middle man and decided to keep the fewest roots possible, just in case they get fatigued, like they do with the latest Wii game, with their surroundings.

The home ownership roller coaster started about the time the century turned. Getting a mortgage became like eating at a fast food joint. Place your order, drive around and voila! You're a home owner! Now the tide will flow at an even faster ebb away from ownership. That mindset may increase because we have raised an entire generation of people to dispose of anything they're tired of coupled with the fact that until recently they didn't need savings, a down payment or even significant job stability to buy property. This new world of home ownership is a recipe for a huge cultural, economic change away from said ownership.

Does this generation have the discipline, motivation or even the interest to get back to the future by changing it's ways and actually saving for a house as credit gets cranked down? Will they put off the flat screen TV and latest hot car long enough to think about owning real estate?

Fifteen and twenty percent down payments are a big commit from anyone...let alone a generation that's never really had to make that choice. In the end they ultimately may no longer be interested in doing so.

Questions? Comments? Donations? Greg@GregCooper.com or 317.848.GREG (4734)

Fannie, Freddie, Whatever it takes.

So Warren Buffet thinks it's a great idea. Frankly that's about good enough for me. So does the Dick Vitale of money, Jim Cramer at CNBC. In fact just about anyone you ask today is in favor of the government take over at the two lending giants Fannie May and Freddie Mac. While it would have been best that they not have to be dealt with in this way, the take over saves millions from foreclosure, nudges the real estate market forward and probably saves a run on one or several other lending insitutions.

For those of you who have their fannies and freddies confused, here's the simple version of who they are and why they matter.
Fanniemae and Freddie Mac, are the largest loan guarantors in the country. They are responsible, essentially, for the health of the loan mortgage market in the United States. They have nothing to do with a semi sweet box of chocolate or a deceased rock star.


They do have a significant impact on the health of the U.S. housing market and subsequently the American public as a whole. Mark Zandi, chief economist at Moody's Economy.com predicted that 30-year mortgage rates, currently averaging 6.35 percent nationwide, could dip to close to 5.5 percent. That's because investors will be more willing to buy the debt issued by Fannie and Freddie -- and at lower rates -- since the federal government is now explicitly standing behind that debt.

"Effectively, the federal government has now become the nation's mortgage lender," he said. "This takes a major financial threat off the table."

Friends, if conventional mortgage rates begin to move towards a 5.5% rate from the mid 6% rates were seeing today, the faint light we've been imagining to see at the end of the tunnel will start to get brighter. Do not for one second think that this will cure all of our ills. There are still too many foreclosures both in the Indianapolis area AND nationwide for that to be the case. There is still far too much resale inventory for that to be the case. There is still a total trepidation among buyers that they are paying too much that won't go away anytime soon.

It will, however, add hope....which may be the most important factor in determining the direction of the market in 2009.

Bill Engvall and Real Estate:
Giving Us Signs

Comedian Bill Engvall established his own trademark bit while appearing on the Blue Collar Comedy Tour several years ago. He would share an anecdotal story with an obvious, humerous punchline and conclude with the slogan "here's your sign" meaning the story's ending was a foregone conclusion. Right now we're seeing the empirical evidence of where our real estate market is headed based on the last 45 days through home builder stocks. I think with some certainty we can now speak of the direction of the market and say, "here's your sign."

Like clockwork over the past 4 decades when the direction of the real estate market has turned, it has done so on mark, 9-12 months after the stock prices of national home builders have changed directions. It happened in late 2005 when the builder's stocks peaked and began going down translating into an actual real estate market that showed it's ugliness beginning in late 2006. It was obvious to those of us in the business that post Labor Day in 2006 home sales were the pits. Needless to say they still are BUT......here's your sign.

On or around July 14, to the letter, national home builder stocks have changed direction and for the most part are now trending up as the housing bill was signed. In fact on this day the 15 most impactful builders in the dow are all up.







Take a look at the direction of these national builders and see if the trend isn't more than a bit obvious:

Pulte, Toll Brothers, D.R. Horton, Centex

The stock market isn't stupid (well, most of the time). There's a reason the investors of some of our nation's largest home builders are buying back in. NOT because it's going to turn tomorrow. The investors in these companies are looking at all of the market factors and believe that there's light at the end of the tunnel. What does that translate into for consumers? I'll take a look at what home SELLERS and home BUYERS should do over the next 9-12 months in part 2 of Here's Your Sign coming Monday September 1st.

Questions? Comments? Donations? Greg@GregCooper.com or 317.848.GREG (4734)