Everybody is banking on millennials to take the housing market to new highs over the next several years.
Problem is, in the regions that matter the most to the macro economy and “housing market” statistics, most don’t earn or save enough money to buy houses at historically high prices.
The savings problem is easy to fix vis a’ vis easing lending standards, which they have done; presently, Fannie, Freddie and FHA down-payment guidelines are looser than Bubble 1.0.
But, the qualifying issue — with a house price and income component — is more difficult without bringing back NINJA loans for wage earners.
They are trying, however. Recently, Fannie increased their DTI ratio guide from 43% to 50%. This means, before taxes and all the other expenses of life (like food and all other monthly expenses not listed on a credit report), a mortgagee can spend HALF of their gross income on debt payments.
These are the exact same moves they made from 2004 to 2007, to stretch lending to the outer bounds, as house prices became completely unaffordable.
The following are great data from apartment list on the poor shape of Millennials.
1) Millennials simply don’t earn or save enough to afford houses at historically high prices.
2) In San Jose, Millennials need to save for 24 YEARS to achieve 20% down.
Or, they spend a couple of years working at a start-up at below market wages in exchange for a bunch of options and make a billion dollars when they “kill it” and get bought out by Google or FB.
Hundreds of thousands presently are participating in this “dreams of private islands” employment situation in the Bay Area and other tech-centric regions.
3) Even at only 10% down, only 36% of millennials can save enough in 5 years.
Fortunately, if house prices are down 30% in 5-years a lot more can buy.
4) Millennials seem a little lost when it comes to stuff in the real world.
This is kinda crazy.
5) Bottom line: The road to Millennial home-ownership is long, even provided the economy and job market continues down the same path as it’s been on for the past several years.
A recession, or worse, over the next year or two makes this road a lot longer.