MND's fourth part of its summary of the Harvard Joint Center on Housing Studies' State of the Nation's Housing published yesterday looked at the impact the Millennial Generation, those young adults born between the early 1980s and early 2000s are having on the housing market.  Or maybe the impact they are not having is a more accurate way of describing it.

The article notes that over the ten years ending in 2013 the homeownership rate of Americans between the ages of 25 and 34 slipped almost 8 points.  Homeownership among the next older 10 year cohort was down 9 percentage points.  These are the age groups that usually drive the first-time housing market as well as being strong move-up buyers.  Their absence is beginning to be felt.  According to the National Association of Realtors the market share of first-time buyers has been dwindling steadily and has fallen from its historic level of 40 percent to a current 27 percent.  

Homeownership among minorities has always been and continues to be lower than among white households and the minority share of younger age groups is growing, meaning that the homeownership rate is likely to remain lower than in previous generations.  Add to that the effect of the recession on entry-level incomes, student debt, the tight credit (again a bigger problem for minority buyers) and, while the Harvard report does not mention it, the intangible shock effect of the housing collapse and recession on American attitudes today homeownership, and there is obviously a downward generational pressure being exerted on the housing market.

Lorraine Woellert, writing for Bloomberg, looked at a father and his daughter to illustrate how recent events may have altered attitudes toward homeownership.  And she didn't pick a random parent and child; she interviewed David Stevens, head of the Mortgage Bankers Association (MBA) and former commissioner of the Federal Housing Administration, and his 27 year-old daughter Sara.

Woellert says Stevens has spent his career lauding the merits of homeownership.  Sara isn't buying it. 

Six years after the housing market collapsed Woellert says "some young adults are more risk averse and view the potential upsides of status and wealth more skeptically than before the crisis, altering the homeownership calculation. It's more than the weight of student loans, an iffy jobs market and tight credit -- even those who can buy are hesitant."   In Sara Stevens' case, while she knows interest rates are low and that owning a home can build wealth, "She also had a front-row seat to the worst real-estate slump since the Great Depression."

Dad started her indoctrination early, showing driving her through neighborhoods and discussing house prices and curb appeal from the time she was a toddler.  Sara said she always figured she would buy a house when she hit her late 20's. She is there now, with a good job and engaged to a man with a good one as well; little debt, a dad who is ready to help with a down payment, yet she and her fiancée remain renters.

Sara Stevens says the world has changed but the statistics Woellert rolls out indicate it may have changed for the better.   Back in 1984 when David Stevens, now 57, bought his first house for $73,400 first time homebuyers made up 37 percent of the market.  But interest rates were at a scary 13.9 percent and the affordability index (which takes into account interest rates as well as home prices) was at a middling 64.9 percent whereas today it is 116.  Mortgage payments took up 28.2 percent of a home owner's income but Sara would be buying into a scenario where that figure has dropped to 14.2 percent.

There was also more of an urgency to get into the market back then.  Woellert quotes John Buckley, managing director of the Harbour Group, and consultant on a MacArthur Foundation survey on homeownership:   "There was a sense that the window was closing to get a good deal and be able to participate in the American dream." Today, there's "tremendous uncertainty about whether the value of that investment is going to be worth the commitment and risk."

On a very important note, Sara and her fiancée are not saying "never" to homeownership.  They surf on-line listings but even though a mortgage payment might be cheaper than their rent, they like the urban setting of their current Arlington, Virginia apartment and the convenience and amenities it affords.  Sara also notes the longer term commitment of buying and says "I'm hesitant about diving in and feeling like I'm not financially ready."

Woellert says the first of the Millennials were entering their home buying years just as the housing market collapsed and Sara, whose father was appointed to his FHA position in early 2009, had more occasion than most to witness the impact first hand.  "Part of his job was to lobby Congress not to dismantle the financial architecture that had made it possible for generations of Americans -- including himself -- to buy homes."  But Woellert said he also was trying to assist family and friends who couldn't pay their adjustable rate mortgages or sell their devalued homes.

Sara watched all this while her dad wondered out loud how the housing collapse would affect her and her generation.  Today he says the younger generation saw the effects of the housing bust and "They're clearly being more thoughtful about it and they're clearly deferring that decision."

Of course Sara and her fiancée are not typical of their generation and she acknowledges that. "I am incredibly lucky," she said. "My parents have positioned me well and they've given me resources to take on a house if I really wanted to. I think that's part of his worry. If we're still having this conversation, what's it like for a whole generation of other kids?"

And that whole generation has a student debt load totaling more than $1 trillion, triple what it was ten years ago and many have not been able to successfully launch careers.  They are also looking at a home buying landscape with higher down payment requirements and tighter underwriting criteria than before the crash.  

But a lot of the reluctance of the Millennial Generation to become homeowners might be traced to the same roots as Sara Steven's.  They are what CoreLogic's chief economist Mark Fleming calls "Channeling Grandma."  His own generation (he is 42) has weathered the financial upheaval better than Millennials who are jaded he says.  "Like their grandparents who went through the depression, they're apprehensive about overextending themselves."  

Original Story From Bloomberg: He's the Top U.S. Mortgage Salesman. His Daughter Isn't Buying It