Like Boomers, 74 million-strong Gen Y will give housing market much-needed boost

After another foreclosure bubble from Alt-A loans and Option ARMs resetting in 2010 and 2011, and with unemployment rates still rising, a sustained, healthy stretch of increasing sales, values and homeownership rates will come, according to Dave Lininger, RE/MAX International chairman and co-founder. But this upswing won't be built on questionable lending practices, overextended buyers or insane debt-to-income ratios. Instead, a combination of pent-up demand and demographics – with the youngest group of adults, Generation Y, providing much of the spark – will serve as the foundation.

Lininger describes the generation born between 1980 and 1995 – also known as the "millennials" or "echo boomers" – like “a pig in a python.” Now aged 14 to 29, they comprise a block of 74 million potential buyers – nearly as many as the 80 million baby boomers born between 1946 and 1964. He says considering the influence the boomers have had on virtually every aspect of society over the past 40 years, including the housing industry, he finds it fascinating to anticipate the impact of another wave that's just as massive.

The oldest members of Gen Y are approaching the average age of first-time homebuyers – the National Association of Home Builders puts it at 33 – and many of them are already taking advantage of attractive buying conditions. They’re moving through the household formation years of 25-44 and will soon replace Generation X (the 48 million people born between 1965 and 1979) as the primary first-timer group between 29 and 33. They will do so in much greater number.

The children of boomers, Gen Y is on the verge of becoming the major consumer force, although they’re not as well off as their parents were at their age, Lininger says. Despite being burdened by steep college loans, higher prices for everyday goods and an uncertain job market, they’re extremely confident, mobile and positive about their futures. Many are marrying earlier, without large nest eggs, and others see moving back home as a prudent way to save some money and wait out the economic turbulence.

Their expectations in housing are different, too. Their lifestyles are active, urban and social, so they generally favor smaller homes near recreation, restaurants and friends. Many would just as soon live in a townhouse or condo as in a large single-family home, as mowing the yard is not what they want to be doing on a Saturday afternoon. And though some embrace the charm of older homes, most prefer newer buildings filled with the technology and modern amenities with which they grew up.

Despite the current lack of buyer interest, a reservoir of pent-up demand is building in every age group: Gen Y couples who are content with renting or living with parents until their careers get going and their incomes cover their lifestyle expenses with something left over; Gen X families who have outgrown their homes but are delaying moves because of employment concerns and the tough economic times; boomers who no longer need five bedrooms but are hunkered down and postponing their downsizing or relocation plans, Lininger says. Eventually – those of us at RE/MAX International think it will be in four years or so – they’ll all feel secure enough to take the next step. Sales will rise and our industry will return to normal, although it will be a new, different normal than before. Regardless, we still face many challenges before members of Gen Y fully flex their buying muscles and help put housing back on track.