Millennials want to buy homes. They just can't afford them

S1: This is KPBS Midday Edition. I'm Maureen Cavanaugh. There's no doubt about it , housing prices have dropped in San Diego. A recent study found that the price drop has wiped out all of the home price gains from last year. There's also no doubt that the price drop is not helping first time homebuyers. Real estate experts say high mortgage rates and the still staggering prices for home ownership are keeping young buyers out of the market. Now , we often hear that millennials and Gen Zers are less interested than the Gen-X and baby boomer generations in buying homes. But Surveys finds 65% of people under 40 view home ownership as the pinnacle of achieving the so-called American dream. They just can't afford it. Dowell Myers is here to talk about why homeownership has become such an elusive dream for young Americans. Dowell is a professor at USC's Price School of Public Policy and welcome to the program. Hello. Hi.

S2: Hi. Thank you for having me on board. Okay.

S1: Okay. Well , let me ask you , first of all , what's the big deal about home ownership ? There are so many other investment options. Now.

S2: You can actually sit on top of it or you can sit inside it. It's not like other investments which you just have on paper and you can't use them for anything. It's a platform for where the family wakes up every morning and that's your launching your launching pad and your home base , and then you head out into the world from there. So it's a secure base for your family operations. But really the big advantage of home ownership is that investment is that it's leveraged. You make a down payment of 20% and if the prices go up by 10% on the total , you get to keep the 10% on the total amount of the house value , not just 10% on your down payment. So you actually get five fold return because of the leveraging effect. That's how people are able to actually accumulate wealth. And even in times when home prices are only going up slowly.

S1: And it's been seen as a key to generational wealth , hasn't it ? Absolutely.

S2: It was true in the past , and we saw that in the post-World War II era that people were able to get homes really cheaply because of the new mortgage innovations with low down payments and the loans guaranteed by the federal government. It really opened up access to working class and middle class families.

S1: Now , there's a lot been written about generational shift in attitudes on home ownership that younger generations are not interested in buying houses.

S2: That's what that attitude , that myth derives from is that period , right ? Then the Great Recession really knocked a lot of people off balance. Homebuilding was really driven down. It was just total economic dislocation. And in that in that pause there , we had a very large generation coming of age , the millennials. And we didn't really have enough housing being built for them. And so they were sort of hunkering down with roommates who were living in neighborhoods where young people like to congregate , you know , near the bars and lively nightspots where young people like to go and meet other young people. That was just a phase in their life and a phase in the business cycle.

S1: Younger people , though , are still there. They move around more often. They leave jobs more often. They get new ones in another location.

S2: It used to be people were married by age 22. Now it's more like 32. So in that 20 years or that a ten year period of your 20s , what do you do ? You know , you're not married. And so they're moving around and changing partners and exploring their careers and that in that time period , yeah , it doesn't make sense for them to be a homeowner , but you have to get to be age 30 or 35. Then people are really know. I've watched it happen to many people and it's nesting. Instinct kicks in and they want to get married , they want to settle down. And then part of that package is they want to have a home that they own. And it's a joint project between the two partners. The house becomes a joint project that they work on together , and it's just a life event that they want to be part of.

S1: Now , if you don't happen to be a millennial or a Gen Z , they will be eager to tell you that buying a home was a lot easier back in the 70 seconds or 80 seconds or even the 90 seconds than it is now. How is that true and why is that true.

S2: As we hear that all the time , don't we ? It was absolutely true. There was a lot more land available and a lot more construction that was being put on the ground and and recruiting new homebuyers. Now we have a shortage of housing. There's not enough to go around like musical chairs. And the music stops and there's two people left out. Now it's just a lot harder. The financing is more difficult. The buyers are saddled with student loan debt. Boomers never had that when they were in college. It was never a problem before older people when they were young. So it really cuts into their their mortgage payment ability by knocking about $1,000 or so even off of their of what they can afford because of the student loan debt is occupying so much of that budget. So just a host of different issues that are plaguing them today that weren't there before.

S1: We're talking home ownership here on Midday Edition. And our guest is Dowell Myers , a professor at USC's Pryce School of Public Policy.

S2: It varies around the country. How big a share that is , but it's much higher than it's been for over a decade. So that's good news. The trouble is that when there's a shortage , there's lots of competition. And the way you win I just recently I'm an older homeowner and I actually moved and bought a house recently myself. So I can sort of see both ends of the story here. And when you're competing , you have to pay more than the asking price. But more than that , you have to also compete with people who are paying all cash rather than have to finance a mortgage and make that part of the contract for purchase. You actually just offer all cash and then you win the game. Well , who has all cast for that much money ? Those people are tending to dominate the home purchases. And so sometimes that's an investor. It could even be an offshore investor , although not as many in California as there used to be. It's somebody who is better positioned. They have family money. They have parents who can help them with a purchase. At least a quarter of of homes are supported by family assistance. So it's not a level playing field for people whose families don't have those resources. And that's really a big problem , a major problem , because it's denying them access to this American dream and to this wealth building channel of activity.

S1: Well , I guess like in all things , the pandemic had a big impact on the housing market.

S2: I mean , there was a 1918 pandemic with the flu. That's the closest we've come to this. And so nobody has any experience with this. We could sure stop the economy overnight , but restarting it is really difficult. Turns out the supply chain problems and the dislocations , people just aren't lined up in the queues for for looking for jobs and training for jobs the way they were before. It's just total disruption. So one thing that happened is that people were in the first year , we were really afraid about contagion and how this virus would spread and people wanted to get away from denser areas and so they moved. Even in LA , I see this , they moved from one part of LA to another part of LA , and then the people in the less dense parts moved even further out. So everybody kind of spread outward and did it all simultaneously when everybody jumped at the same time , which is probably why the prices spiked by as much as they did , you know , more than 25% per year for two years. That was crazy. But they're all jumping at the same time. And there wasn't supply doesn't expand that quickly. It can't expand that fast. And so we put enormous pressure on the housing market in areas where people wanted to move to and emptied out other areas in the middle of the city , temporarily at least. So we're still responding. And meanwhile , we also learned long term skills like how to use Zoom and work from home. And a lot of people are sticking with that. Even though the pandemic is over , we're not seeing the downtowns be filled back up right away. It's very slow going or , you know , two thirds full across the country and some are only half full still. So that's creating a real upset in real estate investment markets because people were counting on those to be permanent investments and they're looking kind of shaky right now.

S1:

S2: The governor can say all he wants about how many homes he wishes to build by building a house takes time. It takes at least five years to act from when you think about it to when you actually can open it up and have people occupy it. That's a good length of time. Meanwhile , demand keeps compacting and congesting , and so it raises the prices upward. What's going to save us in the end here is that baby boomers themselves are going to sell their houses , but it's going to be a slow melt. But as they do , they'll be releasing a lot more inventory onto the market. And they've been holding back , moving less than expected. And soon they'll be moving more than expected. But it's been just impossible for people to predict. And again , the supply is just isn't making up the gap. The new supply is too slow. There's been lots of great legislation in California. They're making an effort to try to provide more opportunities , but they still have to get it passed by citizen voters at the local level and neighborhood councils and city councils. And there's lots of resistance from the communities. Understandably , it's a shock. People don't really believe we need all this housing. They haven't looked at the math. I'm happy to provide some of those numbers myself. There is definitely a need and it really rests on the fact we have this large generation. So we we need to get a little more reality about. How many people there are and how much housing do they really need and figure out how we can all work on that together to make it make it possible to actually build these houses and provide a home for everybody who needs it. The evidence is on our streets. The homeless are just the canary in the mineshaft. They're not they're not the whole thing , but they reflect the same problem. There's not room for people. And when a musical chairs stop , two people get left out and there they are.

S1: Now , I understand that you have two millennial children.

S2: It blew up one Thanksgiving with the aunts , I remember. But well , my kids have been have been fortunate. They've been more privileged than than average , I think. And so it's helped them a lot. But they had to scramble. The Great Recession really stunted their career starts really held them back. One of them went out to Palm Springs and and got a foreclosed house out there and and fixed it up and lived out there for five years. And now he's gone off to Texas because he realized he still couldn't buy a house. And in Pasadena area where he grew up and where he wanted to live. And so he and his wife both decided to go to Texas and they found better jobs there and and much more affordable houses and really good schools. So that's actually working out for him. And the other one is still deciding the younger one , you know , where exactly he's going to settle , but he may end up in Texas , too. You just watch. It's sad because we need this younger generation for our future workers , taxpayers , and also future our homebuyers , too. And once they go out , you're not going to get them all back. I mean , we might get half of them to come back , but we're not going to get them all back. And it's a tragedy to lose these younger , younger people who'll be educated in our own expense here in California. And now we don't get to keep them. That's economic disaster , really.

S1: I've been having this conversation with Dowell Myers , a professor at USC's Pryce School of Public Policy. A lot of good things to think about. Thank you so much for speaking with us.

S2: Well , thank you for inviting me.