Growing up in the mountains of West Virginia, I was taught at a young age that home ownership was the single best investment one could make to ensure future wealth and prosperity. The typical person enters the workforce in their early 20s and worked a 40 year career and while it is no secret that the market fluctuates, over the course of a career the gains on a home bought early on should show substantial appreciation. This is the mindset that many from Generation X and Generation Y (aka the Millennials) were taught, but the market crash of 2008 upset the financial as well as personal lives of many from these generations that had rushed in fervor to buy a home during the housing boom of the early 2000s. Many market participants from these days have watched their homes end up in foreclosure and have vowed never again to pursue home ownership. This coupled with a shift in our society to a need for instant gratification and several varying career paths that tend to move people around along with a housing market that functions differently than they were taught have kept many of today’s younger generations outside of the housing market and are working to prolong the housing recovery.
Today’s housing market is a much different environment than the markets that the Baby Boomers navigated. The primary difference between the generations is in the way the mortgage market functions now. Baby Boomers typically needed to have a 20% down payment to purchase a home and there were not many financial alternatives as opposed to today’s market which has a number of different financial options for borrowers. This 20% investment worked to protect the borrower from price depreciations and also weeded out market participants that were not yet financially prepared for home ownership. As the financial markets were de-regulated in the 90s, it opened up home ownership to people at a much younger age that lacked the financial ability to weather a downturn in the housing market. Today, as the financial markets begin a shift back towards more restrictive lending, Millennials are being weeded out from the housing market as they lack both the financial capital and job stability that were key to home ownership for the Baby Boomer generation.
Millennials are also faced with the problem of aged housing in our urban centers. As our society becomes more and more service driven, many of the higher paying jobs are found inside the urban core of the City. Many urban centers were built up in the earlier parts of the 20th Century and lack many of the features that new home owners have come to expect such as stronger durability, efficient heating and cooling systems and updated interiors. Purchasers of these homes need sufficient reserves to update, repair, or restore many of these homes. Home buyers today barely have the money to make the necessary down payment on a home yet alone have the reserves to work on the home after purchase. Millennials who want newer built homes typically must migrate to the suburbs which puts them at a disadvantage as service based jobs become scarcer the further they move outside an urban center.
One solution to the problem of aged housing in our urban cores has been to build condominium buildings. While this solves the problem of increased housing demand inside an area with a limited supply of space, condominium ownership presents several challenges. One of which is the shared ownership feature which condominium owners have. The fees associated with owning a unit is often several hundred to sometimes over $1000/month depending on building and City and is dependent upon all owners paying. When one or more owners do not pay, oftentimes due to foreclosure on their units, the others must take on the financial responsibility in the form of special assessments. This uncertainty presents a challenge to a first time buyer living on a budget. Condominium ownership also turns away many of today’s youth that want to start a family. Since condominiums lack land, many feel this environment is not suitable to a child who wants to go outside and experience life outside of the home.
Much of the cheaper housing in our urban centers is still as a result of foreclosure inventory and while many of the banks have policies in place to aid in home ownership such as First Look periods for owner occupant buyers and closing cost / down payment assistance programs, they rarely invest in the home themselves. Banking institutions that do rehab homes almost always focus on newer homes only and leave the older ones as-is for investors. Banking institutions need to repair and rehab their inventory of homes in our urban centers to aid in home ownership for our Millennial buyers. This investment will also benefit the banking institutions as the increased value of the home will help prop up other homes in the area and lead to a return of higher values in the community. Banking institutions also need to understand their responsibility when lending on a condominium building and be ready, willing, and able to pay their share of the dues when the owners go into foreclosure instead of fighting associations to pay little or nothing when they take over ownership and thus results in deteriorated conditions for the building and lower values overall.
Home ownership is a great investment for both the owner and the communities. Historically its appreciation has outpaced the rate of inflation and provides a good nest egg of stability for retirees. Homeowners take pride in ownership and aid in keeping down crime and community blight as well. Home ownership represents the American Dream and Millennial participation along with stronger support from the financial institutions in the housing market is needed in this final stretch of our housing recovery.