Landmark Links June 30th – Looking at it Wrong


Lead Story…. There are few issues in the world of real estate that have captured the collective attention of the financial press like that of Millennials and home ownership.  Coming out of the Great Recession, a popular but largely false narrative took hold that Millennials never wanted to be home owners and were content to rent for their entire adult lives.  Starting around 2013 and 2014, John Burns Real Estate Consulting and others poked holes in this narrative by demonstrating that members of the Millennial generation, when polled, almost always expressed a strong preference for ownership.  The problem was that Millennials were experiencing life events that usually lead to household formation (think marriage and children) later in life than prior generations had.  They also overwhelmingly didn’t have the finances to buy in their mid to late 20s as prior generations did.  Laura Kusisto of the Wall Street Journal wrote a story late last week entitled  Millennials Want to Buy Homes but Aren’t Saving for Down Payments that had some depressing stats about just how little financial capacity the majority of Millennials have (emphasis mine):

Nearly 70% of young people ages 18 to 34 years old said they have saved less than $1,000 for a down payment, according to a survey by Apartment List, a rental listing company, expected to be released Friday. About 40% said they aren’t saving anything on a monthly basis.

Even senior members of the group are falling short. Nearly 40% of older millennials, those age 25 to 34, who by historical measures should already own or be a few years away from homeownership, said they are saving nothing for a down payment each month.

The study helps illuminate a tension at the heart of the housing market. The vast majority—some 80%—of millennials said they eventually plan to buy a home. But 72% said the primary obstacle is that they can’t afford it.

“It’s encouraging that millennials do want to buy homes. It suggests that they are delaying forming households but they’re not giving it up,” said Andrew Woo, director of data science and growth at Apartment List. “The biggest reason [they aren’t buying] is because of affordability.”

While nothing in the quoted passage above is inaccurate, I do think it’s a bit misleading.  Distribution matters a great deal here.  For example: how do the respondents to the survey distribute by age in the first paragraph?  If the distribution skews heavily towards 18 year olds than the extreme lack of savings is not at all surprising.  However, if it skews towards the upper end of the range the data falls somewhere in between depressing and distressing.  I haven’t been able to find the raw data before I posted this.  The other issue that I have with the survey is that it appears to focus on the wrong age group.  It’s been well established at this point that household formation is happening at increasingly older ages.  So wouldn’t it be more appropriate to focus on ages 30-39 rather than confine the survey just to Millennials, the youngest of which are far from their prime household formation years? Is it really all that relevant to include people in their late teens and early 20s in a survey about savings for home ownership?  Also, I have not yet been able to find data for prior generations but I’d assume that a majority of young people pointing to affordability as being the primary obstacle to owning a home is not all that unique.  Kusisto went on to detail why young people are saving less than they should be (emphasis mine):

The reasons young people are falling behind include student loan debt, rising rents and the slow starts many got to their careers during the recession. Living in vibrant urban centers with ready access to restaurants, bars and entertainment might also make saving seem less urgent.

Many are children of the affluent baby boomer generation and some expect their parents to give them a boost when the time comes. In all, about one-quarter of millennials ages 25 to 34 expect to receive help from friends or family, according to the survey. Still, three-quarters said they expect to receive less than $10,000, which might not be enough to close the gap.

There is evidence to suggest that at least some young people could be saving more. On average, millennials who make more money save a smaller share of their incomes. Those making less than $24,000 save about 10% of their incomes, for example, while those making more than $72,000 save just 3.5%, according to the survey.

This part of the survey made sense.  Student loan debt and rising rents eat in to savings and they are more of a headwind for this generation that the ones that came before it.  The third paragraph above shouldn’t be a surprise.  Chances are that a young person making $72,000 a year will have a higher student debt load and higher cost of living due to the clustering of well-compensated jobs in high-priced urban areas than someone making $24k would.  I think that its fair to assume that the person making $72k likely has a college degree while the one making $24k does not.  The reason college keeps getting more expensive is because the ROI is still good compared to the alternative, even when you factor in the debt carry.  The jobs that pay young people $72k  likely have steeper earnings trajectories than those making $24k.

What makes me so skeptical of the headline results of the study is the reality that Millennials (especially older ones) are buying more houses, not less.  In fact, they represent the largest share of buyers starting around 2015 per the NAR.  The WSJ story went on to reference similar statistics (emphasis mine) :

To be sure, by some measures more millennials are finding a way to buy homes than a few years ago. First-time buyers have accounted for 42% of buyers this year, up from 38% in 2015 and 31% at the lowest point during the recent housing cycle in 2011, according to Fannie Mae. The mortgage giant defines first-time buyers as anyone who hasn’t owned a home in the past three years, a group that could include older people as well.

Yet some millennials face daunting odds. Less than 30% of 25- to 34-year-olds can save enough for a 10% down payment in the next three years, while just 15% could save that much within a year, according to the Apartment List survey.

I’m not writing this blog post to suggest that young people are saving enough – they clearly are not.  However, the age group chosen for the study simply wasn’t the correct one, IMO – unless of course the goal was headline shock.  I suspect that a survey that focused on those age 30-39 would tell a very different story – one that more closely aligns with increasing buying activity among first timers and young people that is actually being seen in the market today.


Reversal of Fortune: Rural areas are the new inner cities – defined by rising poverty and falling economic growth – and it isn’t getting better anytime soon.

Getting Close: Here’s why economic growth often takes off when the best and the brightest are in close proximity to each other.

20/20: It’s impossible to know if we are truly at full employment until after the fact. Here’s why.


Eaten Up: Food and beverage has essentially taken over retail as eCommerce continues to erode traditional retail stores.  See Also: Why authenticity is critical to food hall development.

Branching Out: WeWork has quietly launched a fitness business inside of it’s network of shared offices.


Such a Drag: By pretty much any measure, productivity in the home building sector is terrible.  In the past half-century, home builders have become 35 per cent less efficient relative to the rest of the economy.

It’s Lit: Sacramento is California’s latest real estate hot spot as a downtown resurgence and prices well below those in the Bay Area have the market booming.

This is Why We Can’t Have Nice Things: A much-needed new San Francisco apartment project is facing steep resistance because it casts a shadow on a park.


Disappearing Act: Tech icon Walt Mossberg discusses how computers will continue to disappear into the background as so-called “ambient computing” takes off in his final ReCode article.

Endangered Species: Once a staple on trading floors and at hedge funds, Ivy League jocks are becoming an endangered species on Wall Street as quants take over.

Un-kept Promises: Last year, Pittsburgh rolled out the red carpet for Uber to test it’s driverless cars there.  Now a string of broken promises have caused the relationship to deteriorate.

Chart of the Day

After the post-election bump, the yield curve has reverted to it’s long term trend since 2014: flattening.

Yield Curve



Come Again? Police have arrested a Portland, Oregon man on suspicion that he was randomly throwing semen at women.  Apparently he made a wrong turn on the way to Florida.

Extra Hot Sauce: Meet the woman who maced three Wendy’s employees in a dispute over french fries.

Name Game: Tip of the cap to the NY Daily News for this incredible headline: Truck Plows Into Delaware Company AnalTech, Releasing Odor that Leads to HazMat Situation

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