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Different Housing Needs for Different Generations

June 14th, 2012 | Posted by Dick Thackston in Mortgage News | News | Real Estate News - (0 Comments)

I see America changing every day when I talk to home buyers. American’s expectations about housing are switching rapidly from the “American Dream” of Mom, Dad, kids and a house in the suburbs, not as much because of the financial decay of the last three years, but rather because the current generation of Home Buyers, the so called “GenY”, has moved away from the highly conformist expectations of their grandparents – the “Baby Boomers” – to a highly diverse, multicultural, multidimensional society.

The Baby Boomers experience, viewed as a cultural event or milestone, has had more impact on American society, real estate and home ownership than any other event in American society since the Civil War. Boomers were raised with these expectations and typically only owned three or four homes in their lives – this is the generation that had mortgage burning parties when they paid off their homes and built a pool.

The Gen X’ers, the children and grandchildren of the Baby Boomers, never fully adopted the lifestyle of their elders. This is the generation that came of age in the boom years of the 80’s and 90’s. This generation used credit cards, car loans and mortgages like no generation before. This is the generation the treated their homes as Piggy Banks and expecting to buy low and sell high on every home they would ever own and they expected to own a lot of them too! Gen X’ers as a group expected to stay in multiple homes for short periods – three to four years max – disposable lifestyles. Their generation is much smaller then the “Baby Boomers” as a group but has had a disproportionate impact on the housing market. While these Gen X’ers have had an immediate short term negative effect on housing and the American Economy as a whole, the effect on real estate will be short term because this is a small generation. The dramatically different “Generation Y”, aka “The Microwave Generation”, influence is already being felt on the real estate market and the economy as a whole.

“Generation Y” is much larger than the Gen X’ers and has a completely different agenda. Financially, socially and educationally, Gen Y is dramatically different than either of the two prior generations of Americans. Gen Y is much more likely to have an IRA or a 401K than either of the earlier generations and at a much earlier stage in life: Baby Boomers expected a pension, Social Security and the equity in their home to carry them through retirement; the Gen X’ers expected to flip houses to infinity and beyond with minimal reserves and limited funding of retirement accounts.

“Generation Y’s” effect on housing will be as dramatic as that of the post World War II baby Boomers or greater. The Y’s are happy to not own a home any time soon if at all. It’s more important to the Y’s to have flexibility and cash. This is a generation that has student loans like no other before but that’s because as a group they view education not as just as important but imperative to their lives. Lifestyle choices such as access to services, an elegant downtown – clubs and shopping – is more important than owning a home. Y’s as a group are looking for housing that meets those criterion rather than a quarter acre lot and a three bedroom house.

Sure, Generation Y’s expect to own homes, but it is not an urgent first order of business as it was for their parent and grandparents. Generation Y’s perspective on real estate ownership is colored by their willingness to rent. (Sixty plus per cent of renters want to own their own home someday according to a recent survey by PulteCorp.) The Y’s interest in savings is reflected in the much higher contribution rates to IRA’s and 401K’s than either of the prior generations combined with their much higher student loans and need for “a lifestyle” that is more cosmopolitan and focused on convenience than the Generations of “Boomers” and “X’s” that came before them.

By Dick Thackston CRB, ABR, ABRM

Broker NH, MA & VT

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Im From the Government and Im Here to Help! (Not a shot.)

February 27th, 2012 | Posted by Dick Thackston in Mortgage News | News | Real Estate News - (0 Comments)

Ronald Regan made the now famous statement about thirty years ago that the phrase “I’m from the government and I’m here to help”, was a phrase that Americans everywhere have learned to fear. The current mortgage/housing/financial crisis has only reinforced that view for many of us that have had to deal with the destruction of the American dream since this economic debacle began in 2005.

It is clear to me from my day to day dealings with home owners and former homeowners that the government most assuredly is not “here to help”. A big part of my business has become handling cash for keys for banks. Cash for Keys or Relocation Assistance Programs run by lenders to help the occupants of foreclosed properties find a new home and move. The programs are for the most part well run and helpful to the occupants. I do about two or three of these a week. Here’s the way the government “help” becomes tragic: almost everyone of the people I talk to has applied for assistance under the HAMP or HAFA programs offered by the government; almost no one has benefited from these programs; almost all the people I’ve spoken with in the course of doing Relocation Assistance for lenders would have been better off had they never heard of these programs and several have been the victims of outright fraud.

Example: I spoke with a local family last week that has lived in their home for about nine years. They never refinanced, they never took out a home equity line of credit. They have three small children two under the age of five. Over the last nine years they have worked on their home fixed it up as they went along. Early last year the husband lost his job in construction, so he took a job that didn’t pay as well at a fast food place and the wife went to work part time and they burned up some savings but kept their house payments current – they need a place to live, right? They struggled along and they called their mortgage company; their mortgage company told them to apply for the HAMP program. They didn’t understand what it was so they went on the internet and found an attorney that advertised he would help them negotiate the process. They sent their full mortgage payments to him; he was to get the loan modified; after the fourth mortgage payment was taken out of their account sent them an e-mail and said there’s nothing else he can do; house went to foreclosure. Fundamental problem is the creation of false hope by the HAMP program which a reasonable person will see is non-workable so they hire someone who must be “smarter” than them to set it up, unfortunately he was just a crook.

Example: I spoke with a couple in their early sixties; they’ve lived in their home for 31 years; they raised their kids and ran their business from their home all that time. They got behind on their mortgage when their small business started to fail in mid 2007. They struggled to keep things afloat and did. They contacted their mortgage company to see if anything could be done after meeting with local REALTORS about selling their home; they were surprised at first to find that they owed more than their home was now worth and that there was “no way” they could sell their home without having a substantial deficiency due to the bank. They became aware of the HAMP program and decided they would try the program. They were told that they no longer “qualified” for the amount of the mortgage they had and in order to complete the program would have to bring money to pay down the loan amount. Seriously?

By Dick Thackston CRB, ABR, ABRM

Broker NH, MA & VT

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Reality or Fear Based View of Real Estate in the US The Choice is Yours.

January 26th, 2012 | Posted by Dick Thackston in Buying Tips | Mortgage News | News | Real Estate News - (0 Comments)

Prior to 2007-2008 most of the American public and most mortgage lenders believed, and often would state in conversation, “real estate never goes down!” Since that time frame buyers and sellers have gone to the other extreme and now the common wisdom is “real estate will never go back up.”

Well never is a long time. Both perspectives are wrong.

For the last several years we have been pummeled for a seemingly continuous stream of negative events: tidal wave and earthquake in Japan, un-employment over 10%, European Debit crisis looms as Greece nears default on its debt, (The last one just kills me: the entire GDP of Greece in 2010 – $310 Billion +/- – is approximately the same as the State of Maryland in 2010 – $300 Billion +/-. Do we actually believe if the State of Maryland defaulted there would be a worldwide financial crisis?), and each of the events has run a shock wave through people’s emotions which does affect their willingness to make the long term commitment to home ownership. It’s not reality! Fear sells newspapers, magazines and broadcasts. Fear does not ever produce the best results or good decisions.

Truth be told, the down turn in housing started in the third quarter of 2005. In June of 2005 the Fed bumped rates up in order to stimulate “a soft landing in housing” the curves between housing units sold and housing prices began to diverge at that point with house prices continuing to increase for another two years, while units of sales began to decline at an ever increasing rate. By the time the reality hit it was already too late. That being said, let’s look at the sunnier side of the situation. All of this is clearly tracked by something called the Housing Affordability Index published by the National Association of REALTORS.

The Housing Affordability Index has two basic components: average mortgage rates and average house prices which is then compared to the average household income. The higher the number, the easier it is for people to buy homes, and the lower the number, the harder it is for people to own homes. The number is designed to indicate how affordable the median home is to the median income family in the United States. An index of 100 means that the median income household has exactly enough income to afford the median income home; when the index is greater than 100 then the median household has more than they need to purchase the median home and when it’s below 100 then they don’t have enough. (When I started selling homes in Pasadena, Maryland in 1982, the Housing Affordability Index was well below 100 due to very high interest rates, in the 13-15% range). Today due to all the price declines and interest rates being at historic lows, the Housing Affordability Index has soared to a record high number well over 100.

So what’s the point? The point is that a balanced perspective and a positive outlook on life are the key to making good decisions in housing as well as in other areas of ones life. Scientific studies have shown, (See Dr. David Lykken’s work), that your happiness set point is about 50% genetic and the rest is up to you. There can be little or no doubt that the homes that are being purchased today at historically low interest rates and the lowest prices in a decade or more will fuel the American economic powerhouse in a few years – so be positive, keep your perspective and never say “never”.

By Dick Thackston CRB, ABR, ABRM

Broker NH, MA & VT

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