Millennials Are Killing Everything

An investigation into whether millennials should take responsibility for killing homeownership.

 
 

On behalf of millennials everywhere I would like to apologize for what we’ve done, or haven’t you heard?

We’re killing products, companies, and industries in cold blood. And we don’t even have a good reason for doing it. It’s just fun, I guess.

Napkins? No thanks, I prefer to wipe my hands on my shirt.

Applebee’s? Listen, I can order a 3,500-calorie meal for $20 through an app and not leave my house.

Motorcycles? The fact that anyone rides these is amazing.

Fabric softener? They make 2-in-1 laundry detergent, but no, I’m the bad guy.

I’m 26, which places me firmly within the millennial generation, which the U.S. Census Bureau defines as those born between 1982-2000. And I am the worst, according to the internet.

Every day, it seems, my social timelines are cluttered with the worst kind of nonsensical “analysis” that attempts to prove causation while at the same time generalizing its sample size and failing to look at any of the macro-markers as to why these changes are occurring.

“Millennials Are Killing [Blank]” articles have become so ubiquitous that some sites have created lists to keep up with the departed; it’s also become a Twitter meme.

What’s not often analyzed is the “why” behind all this millennial ruthlessness. And when it is, it’s no more than cursory. Take, for example, this article from Business Insider on Aug. 20, 2017. It identifies 19 different products and industries that millennials are supposedly killing, yet the basis for some of the claims either don’t make sense or hide some otherwise important truth.

Millennials are killing cereal. It’s “an inconvenient breakfast choice because [millennials] had to clean up after eating it,” the article states. Yet, in the cause of death of Applebee’s and Buffalo Wild Wings, the article quotes the Buffalo Wild Wings CEO saying, in part, “Millennial consumers are more attracted than their elders to cooking at home.”

Presumably, cooking at home requires clean up. So, what, we’ll clean pots and pans but a milky bowl is just too much?

Next, consider the millennial takedown of fabric softener. I know little about the product, and I, clearly, am not alone. The article quotes Procter & Gamble’s head of global fabric care in saying that millennials “don’t even know what the product is for.”

What’s implicit in that statement is that millennials should know what fabric softener is or how to use it; if it’s easier to spin that narrative than to actively market the product, so be it. Blaming potential customers for not using your product feels like a losing strategy.

Worst of all, perhaps, is the millennial war on homeownership.

To be sure, millennial homeownership in the United States is at a record low. BAML economist Michelle Meyer says in the Business Insider that’s because of, “tighter credit standard[s] and lifestyle changes, including delayed marriage and children.” But is the foundational sentiment, that millennials are killing homeownership, even true?

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Are Millennials Really Killing Homeownership?

According to a 2017 Wallet Hub study, the average Vantage and FICO scores have increased by 11 and seven points respectively between 2005 and 2015, to 699 and 695. By most standards, these scores would be considered “good” and the borrower “acceptable.”

By age, differences in credit score become starker. The study cites Experian data showing the following breakdown of credit score by age:

AVERAGE CREDIT SCORE BY AGE

Age Credit Score
20 & Under 631
21-34 634
35-49 655
50-69 700
70+ 730

As people age, wealth and experience accumulate and length of credit history grows, all of which positively impact credit.

But when talking about homebuying specifically, lenders require a level of credit that all but freezes millennials out of the market.

According to Ellie Mae’s July 2017 Origination Insight Report, average FICO scores for approved home loans vary between loan types.

AVERAGE MORTGAGE FICO SCORES

  Refinance Purchase
FHA 654 686
Conventional 747 754
VA 712 708

Source: Ellie Mae

The data can also be analyzed by credit score range.

PERCENTAGE OF HOME LOANS CLOSED BY CREDIT TIER

  FHA Conventional
500-549 1.06% 0.18%
550-599 2.53% 0.44%
600-649 18.86% 2.58%
650-699 37.29% 10.64%
700-749 24.77% 22.59%

Source: Ellie Mae

According to the data, nearly 80% of FHA loans, meant for low-to-moderate borrowers unable to make a large down payment, went to borrowers with credit scores greater than 650. The average millennial-aged borrower would find it hard to meet this credit requirement, per the above data.

Of course, analyzing credit score alone ignores the relevance of DTI and LTV ratios in the decision-making process, which do play a role.

But is tightening credit the only reason millennials have killed homebuying? What about Meyer’s contention regarding “lifestyle changes”?

While homeownership rates have sunk, renter rates have shot up. According to the 2015 Bureau of Labor Statistics Consumer Expenditure Survey, the share of spending on renting for 25-34 year-olds increased by 3.2 percentage points between 2004-2015, while spending on owned housing fell by 2.6 percentage points.

In addition, a greater percentage of 25-34 year olds are living at home or with other relatives than ever before, while those living with a spouse or partner has fallen dramatically. But these statistics don’t account for the societal evolutions that have made living alone more acceptable, as well as the rising costs of child-raising.

Sure, some people would choose to live cheaply with their parents into their 30s and it costs more to own than to rent in all 50 states and the District of Columbia, but owning a home is still the dream. Fully 91% of renters between the ages of 25 and 34 eventually want to own a home, according to a 2015 Fannie Mae survey.

Millennials want to buy homes. They just can’t. At least not right now.

 

 

Much has been made of the student loan “crisis” and its potential impact on saving and spending. According to the Federal Reserve, there was more than $1.4 trillion in outstanding student loans at the end of the first quarter 2017, a record high. However, 2014 Brookings Institution data shows that monthly payments are no higher in 2013 than they were in the early 1990s. What’s changed is the average term of the loan — from seven years in the early 2000s to 12 in 2013.

Borrowers are taking out more loans, and for longer period of times. So, while they may not be paying more monthly, they are paying for an additional 60 months — on average.

That’s a problem for those would-be homebuyers, who need to juggle long-term savings with short-term needs. Throw in the benefits a 20% down payment provides a borrower (though LTV often varies by lender and risk), and it becomes harder to see how this group can afford a home at all.

Further still, there’s the fact salaries are, on average, 20% lower than past generations earned at the same age. Education does boost incomes, yes, however the median college-educated millennial with student debt is earning only slightly more than a baby boomer without a degree did in 1989.

Speaking of baby boomers, this generation owns 33 million properties across the country and largely have no plans to move, according to a 2017 Realtor.com study. That study found that 85% of 1,054 boomer respondents have no plans to sell their home in the next year, essentially creating a logjam for younger potential homeowners looking for starter homes.

There was a 4.3-month supply of homes on the market in June, according to the National Association of Realtors, down from a normal inventory of six months. This has resulted in higher home prices. The S&P CoreLogic Case-Shiller national home price index was up 5.6% in May year-over-year, hitting an all-time high. And there may be no light at the end of the tunnel.

That’s because the same housing shortage hindering millennials is affecting boomers. With fewer homes, higher prices, and a wider price divide between starter and medium-sized homes and premium homes, there’s no incentive for boomers to consider moving in the short-term.

So, what happens next?

Millennial homebuyers seem stuck. But as student loan balances are paid down, more workforce experience raises incomes, and housing stock becomes available, maybe we’ll see more millennial homebuyers.

So, no, millennials haven’t killed homebuying. But that’s OK. We’re working on killing vacations, anyway.

 

Aug. 28, 2017


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