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Why Millennials aren’t buying cars or houses & what that means for the economy

Home Forums General Columbus Discussion Why Millennials aren’t buying cars or houses & what that means for the economy

Viewing 15 posts - 16 through 30 (of 211 total)
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  • #511801
    derm
    derm
    Participant

    This is an interesting article to me. I follow Harry Dent a bit, he is sort of an economist, more of a researcher of trends and cycles.

    The newest generation really has only known the market as volatile so they invest less. Student loan burden is extraordinary so that takes over a ton of the paycheck. Houses have gone down in value lately not up so that factors into ownership thoughts.

    Around here I am an old man of 44. I remember when my financial advisor stated that there was never a down year in any ten year period of the S&P 500 and when financial retirement predictions stated you could expect 7%, then 6 then 5 then 4 then 3……per year. Now there is no prediction.

    According to Harry we are now at the cusp of many cycles ending at the same time. But never in history have they ended with so much debt in the world. I do not envy a twenty something going out into the world right now. I have read that nearly 50% of twenty somethings, even with degrees are making ten bucks an hour or less with no benefits. No wonder they look at all the big ticket purchasing and wonder. The major purchasing power of the Boomers is almost done. Who is going to buy all the stuff going forward that drives 75% of our GDP?

    #511802

    JonMyers
    Participant

    Gram, generally I fit the theme of the article as well, and I’m almost 40 years old. My most valuable personal possession is the i7 Macbook I’m typing this on. My next valuable possession is a pair of Barker Black lace-ups, which Saigon has put a beating on, and have now seen better days. :(

    That leads me into another point about stuff though, and that point is quality over quantity.

    There are some people who will always prefer a large quantity of cheap stuff versus a small quantity of high-quality stuff. I fall into the few things of high-quality category.

    I don’t trigger that shopping dopamine release very often, but when I do, I take it seriously.

    I think some in the quantity category enjoy that shopping dopamine rush so much that they seek to trigger that often. Then it’s dulled, and you have to buy more and more stuff to get the same rush.

    Anyhow on this point, it’s hard for me to size up where Millennials stand, especially on high-end fashion.

    I think it’s still a smaller niche amongst that generation, but I do see a lot of Millennials buying one or two signature high-end pieces of fashion, and mixing that with thrift, and the usual throw-away fast fashion.

    Also, with the proliferation of discounting sites like Fab and Gilt, the barrier to entry is a lot lower.

    An interesting place to look for clues might be Pinterest. I see boards, and boards of high-end shoes, dresses, shirts, and so on.

    Lastly, I’ll take the total cost of ownership of a fancy pair of shoes any day over the TCO of a house or car. I know a lot of people feel the same way.

    gramarye said:
    So we fit the theme of that article on the things we aren’t really interested in. We also fit the theme of that article on the things we do buy. Our little apartment nevertheless has two smartphones, two iPads, two Kindles, and a quad-core computer with two graphics-chip slots on the motherboard and two large monitors. We both have bicycles that are a cut above what you’ll find at Wal-Mart, Target, or Dick’s. And we’ve recently gotten back from Niagara Falls, Manhattan, and Cape Cod and we’ve got trips to Chicago, France, India, and Australia in various degrees of tentatively planned.

    As a partial sidenote, one category of item that the article didn’t mention but which might fit under JonMyers’ hybrid above of “stuff that delivers an experience” is designer clothes. I’d actually be interested in knowing if the higher-end fashion brands and retailers are experiencing the same problems as the housing and auto industries with younger buyers. Many of the same people who I shake my head at when I learn that they spent $40,000 on a car shake their heads at me when they learn that I’ll sometimes drop $150+ on a pair of jeans or $500+ on a cashmere sweater. Anecdotally, my own acquaintances are a mixed bag. And, of course, the stereotypical Millennial still living at home in his parents’ basement playing WoW all day probably isn’t overly interested in Zegna or Theory. Overall, luxury retailers have been doing reasonably well, but I’d be specifically curious to know how they’ve been doing among younger demographics compared to how they did in the same demographics ten years ago.

    #511803

    CbusIslander
    Participant

    I don’t think the Millennial generation are avoiding big ticket items because of cultural issues. They have had 2 recessions, double the student dept, and a crashing housing market and incomes hasn’t matched inflation for 30 years. When they approach their 30s and marriage and family comes along those big items will come. With smaller family sizes and the needs of larger homes will be less desired but homes will be desired. New home sales are already rising and car sales haven’t been that bad this past year. In summary it is too early to label a generation till it reaches the 40s to see any pattern.

    #511804

    gramarye
    Participant

    CbusIslander said:
    I don’t think the Millennial generation are avoiding big ticket items because of cultural issues. They have had 2 recessions, double the student dept, and a crashing housing market and incomes hasn’t matched inflation for 30 years. When they approach their 30s and marriage and family comes along those big items will come. With smaller family sizes and the needs of larger homes will be less desired but homes will be desired. New home sales are already rising and car sales haven’t been that bad this past year. In summary it is too early to label a generation till it reaches the 40s to see any pattern.

    I’m not convinced that the current uptick in the housing market is the start of a sustained trend, to put it mildly. I’m not alone, either:

    http://www.realclearmarkets.com/articles/2012/08/30/dont_believe_the_near-term_data_weve_not_reached_a_housing_bottom_99849.html

    Don’t Believe the Near-Term Data, We’ve Not Reached a Housing Bottom

    The fact is that the same short-sightedness that led these sun-is-shining pundits to miss the dangers of the housing bubble the first time around, is causing them to wax ecstatic now that housing has allegedly bottomed out. However, they are focusing on short-term data and ignoring long-term trends, which tell a very different story.

    It is true that all 20 cities that are tracked by the S&P/Case-Shiller index, a widely recognized measure of housing prices, saw home values increase in June by an average of 2.3 percent. The National Association of Realtors also reports that existing home sales in July grew 9.4 percent year-over-year. And Census Bureau data shows new home sales jumped an eye popping 26 percent in July from the previous year’s numbers.

    But such short-term increases have happened before, without leading to a full-blown housing recovery.

    For instance, the same Case-Shiller index saw increases from May 2009 to May 2010, only to resume its previous free fall with a vengeance. This period too was hailed as the bottoming out of the housing market. But the optimists failed to account for the effects of the First-Time Homebuyers Tax Credit that gave up to $8,000 to households as incentive to buy a home, pulling demand from the future into the present. Once that credit expired in mid-2010, prices began to fall again past the previous low.

    This time around the cause of the uptick is that there were fewer foreclosures being processed over the past year which, thanks in part to the robo-signing scandal, has effectively taken existing housing supply off the market. But millions of these delinquent properties will be going through foreclosure and be coming on the market at some point, reversing the price trend currently enjoyed.

    *********

    Also, while you’re probably correct that many Millennials will want homes, that doesn’t necessarily mean that they’re going to want to own those homes. As the article phrased it, and I think accurately, Millennials (and many Gen Xers who think like them) are prioritizing access over ownership. Thus far, in the real estate world, the rental market has largely been limited to apartments, with some small houses (often in undesirable areas, at least outside the major coastal cities) thrown into the mix. I could see that changing, though, with a larger share of the rental market becoming single-family homes a notch or two above the current rental market median in quality.

    #511805

    Analogue Kid
    Participant

    gramarye said:
    I’m not convinced that the current uptick in the housing market is the start of a sustained trend, to put it mildly. I’m not alone, either:

    http://www.realclearmarkets.com/articles/2012/08/30/dont_believe_the_near-term_data_weve_not_reached_a_housing_bottom_99849.html

    Don’t Believe the Near-Term Data, We’ve Not Reached a Housing Bottom

    The fact is that the same short-sightedness that led these sun-is-shining pundits to miss the dangers of the housing bubble the first time around, is causing them to wax ecstatic now that housing has allegedly bottomed out. However, they are focusing on short-term data and ignoring long-term trends, which tell a very different story.

    Good article, but there are some nuances. Areas that have high numbers of owner occupied homes and few foreclosures are not likely to get much cheaper. Where I live, there have only been 4 foreclosures in a neighborhood of >600 houses since 2008. Prices are not likely to go down, because the average days on market is ~30 and people generally aren’t getting big discounts.

    This is even more true in places like Grandview due to extremely limited housing stock, which I think is going to get crazy expensive in the next decade (it’s already seen more than a complete recovery from the crash).

    However if I lived on the edge of a cornfield in a 2000 or newer development, I’d be very very worried about my long term prospects if I owned a house there. It’s areas like Galloway and Groveport that are really going to get hit in terms of value loss, even moreso than today.

    #511806

    gramarye
    Participant

    Sure, all real estate is heavily influenced by location, location, location.

    And Grandview has the advantage of having a separate, high-quality school district in addition to its urbanist-friendly development.

    But it still wouldn’t surprise me if Grandview relapsed a little bit as well, if the rest of the country does (though I’d certainly still be there than Galloway or Grove City). The points the author makes about interest rates almost certainly heading up again at some point are national in scope; Grandview and similar high-quality inner-ring suburbs can hopefully offer enough to counteract that downward pressure, but they will still feel it. The same applies to the pressures of a market filled with buyers who are buried in student debt.

    I would be quite willing to accept that many of the Millennials who do want to buy (after all, when we talk about declining interest in owning, we’re talking about trends and percentages, not universal rules) would want to buy in Grandview. However, while Grandview might speak to what Millennials want in a home in a way that Galloway and Grove City do not, Grandview still will have to deal with interest rates and heavily-indebted Millennials just like anywhere else.

    #511807
    Snarf
    Snarf
    Participant

    I really want a Land Rover LR3 HSE.

    #511808
    Walker Evans
    Walker Evans
    Keymaster

    gramarye said:
    …prioritizing access over ownership.

    +1

    This is already very true with media these days. Many young people would rather pay a subscription price to access music/tv/movie content from any device at any time rather than buying and owning physical media to listen to a cd or watch a dvd.

    Why own a car when you can lease/rent and still have the same type of access?

    Why own a home when you can lease/rent and still have the same type of access?

    #511809

    mrpoppinzs
    Member

    Walker said:
    +1

    This is already very true with media these days. Many young people would rather pay a subscription price to access music/tv/movie content from any device at any time rather than buying and owning physical media to listen to a cd or watch a dvd.

    Why own a car when you can lease/rent and still have the same type of access?

    Why own a home when you can lease/rent and still have the same type of access?

    Sounds about right, I wonder what the long term impact will be. What happens to the cars when the lease is up (do Millenial’s buy them)? What changes will happen to our neighbors if we become a nation of renters?

    I am interested in this topic. Recently there has been an upswing in people buying foreclosed or reduced price condos and renting them out. I wouldn’t have originally bought into a building with a high number of rentals.

    #511810

    mrpoppinzs
    Member

    #511811

    I, too, wonder about changes to neighborhoods when more people rent. I’m Gen X, and my parents bought their second house when I was 1 and stayed there until I was out of high school. We were do-it-yourselfers, always with a home improvement project on our own place, or helping a neighbor with theirs. It was the suburbs, but all the neighbors knew each other, and all of us kids played in the court (cul-de-sac). My dad even painted bases on the court for kick-ball. Many of the old neighbors (my parents peers) are still there, and we’ve stopped in to see them. Are these social values being replaced by something else, or are they still there in another form?

    #511812

    CbusIslander
    Participant

    gramarye said:
    Also, while you’re probably correct that many Millennials will want homes, that doesn’t necessarily mean that they’re going to want to own those homes. As the article phrased it, and I think accurately, Millennials (and many Gen Xers who think like them) are prioritizing access over ownership. Thus far, in the real estate world, the rental market has largely been limited to apartments, with some small houses (often in undesirable areas, at least outside the major coastal cities) thrown into the mix. I could see that changing, though, with a larger share of the rental market becoming single-family homes a notch or two above the current rental market median in quality.

    Yes, I know the current upticks maybe temperary, but right now it is cheaper to purchase then rent. This generation is having no problems dropping 1200/month plus in rent with no return. I may have to take a 10% hit on my current home to sell but will still come out ahead with all the principle paid during the time I had it. When this generation settles down in a more stable environment purchases will come. With interest rates low at least for the next few years the rental market will reach its limit eventually.

    #511813

    You know…maybe Millenials are waiting later to have kids, and maybe that factors in on home ownership for the age group?

    #511814
    rus
    rus
    Participant

    chrisgillespie said:
    You know…maybe Millenials are waiting later to have kids, and maybe that factors in on home ownership for the age group?

    Or maybe choosing to not have kids at all?

    #511815

    rus said:
    Or maybe choosing to not have kids at all?

    True. I think having kids changes things for most folks, and they want a sense of place and permanance. Not everyone, but many. Anyway, not wanting a car to me is just changing times, but being nomadic without a tribe sounds isolating for kids. Wasn’t sure if kids weren’t in the equation, or if this social need is taking a different form.

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