Tuesday, May 1, 2012

Making Sense of Homeowner Census

The L.A. Times story from May 1st regarding "U.S. Home Ownership at 15-Year Low" certainly caught my attention as I continue to wonder why certain real estate related statistics are published during the current market crisis.


There is certainly cause for alarm, especially the statistics about how the number of home owners younger than 35 is at "its lowest point since 1994".  This is not surprising. It is actually quite understandable.

The 21 to 35 age group no longer sees the value of owning a home over the long term. When those of us over 50 were growing up and venturing out into the real world, we were shown the value of home ownership. As long as you took reasonable care, your home would increase in value. You could live in it for as many years as you want or need, and then when it is time to move on, you could sell it and most likely make money for your effort. Even if you broke even, there was an expected financial benefit to ownership, and the feeling that in most instances (barring a financial emergency, death of a loved one, sudden job change, etc.) you would not be at risk to lose thousands of dollars when the time came.

However, this generation, especially those in their late 20's, has not seen that formula come to fruition for parents, family members, and parents and relatives of friends. Look at the "big ticket" spending habits of most people over the age of 40.

Many people I know would upgrade to a new (or newer) car every 4 years "no matter what". Now, 100,000 miles on a car means merely another maintenance checkup instead of "get rid of it". The increase of prices and the decrease of quality of many new cars have "forced" people to keep their current cars longer on average than ever before, and to avoid the "extra" transaction.

Now, after a few years (that is YEARS) of housing prices dropping, increases in foreclosures and underwater mortgages, and credit restrictions, there is no guarantee that a home buyer today can make any money by selling it years down the road.

A growing percentage of 20-somethings now are staying "home" to live with parents or family members, or teaming up with other family members or friends for a residence. They see doing so as a way to save money "now", whereas the 40+ generations used to see buying their own home as a means to financial security down the road.

The 40+ generations did not have 401K's and similar long-term investment opportunities available when they finished school and entered the job world. Saving money in a bank account was better than it is today, but was never a solution. Buying a home that could bring in $50,000 more ten years later (for example) was a viable option.

Unfortunately, today's statistics and real estate market give little to no indication that a home buyer can or would profit down the road. While a qualified and thorough buyer can get a great deal based on today's market, there are not enough indications that this is a long term investment with a reward at the end of the tunnel.

Remember the Wendy's commercial years ago, "Where's The Beef?". That could now be done with potential home buyers asking "Where's The Profit Potential?".

Never mind the "more homes sold today than 2 years ago this month" crap we keep reading. Show consumers, especially the younger ones, why they should purchase a home due to long term potential gains, and we'll have some serious movement in the marketplace. Talk about easier said than done.

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