Get ready. A new generation of homebuyers is just reaching adulthood.
Bigger than the Baby Boom, this younger generation will create a new wave of demand for housing and all the materials it takes to build a home ... eventually.
The number of children born each year increased sharply for about 20 years from around 1980. Today, there are 81 million "Echo Boomers" who were born from 1981 to 1999, compared to just 78 million Baby Boomers born from 1946 to 1964. They're also more diverse: More than 40% of Echo Boomers belong to an ethnic minority, compared to less than 30% of Baby Boomers, the Joint Center for Housing Studies at Harvard University estimates.
For the most part, these are the latter-day children as well as the grandchildren of Baby Boomers–thus the "Echo" name. They're also called Generation Y or Millennials.
The Echo Boomers are probably going to make news for years to come, in the same way that the Baby Boomers before them dominated the national landscape. But at least for housing, that news hasn't happened yet. Even the oldest Gen Y members–those born in 1981–haven't turned 30 yet. The peak of the Echo Boom–the more than 4.1 million people born in 1990–are still two years away from graduating from college. And that's assuming they take four years to matriculate; there's evidence it's taking Gen Yers a few extra years on average to get their diploma, putting off even further their entrance into the housing market.
One popular image of Generation Y–the 40% of adults in their 20s who move back home with their parents at least once–can lead pundits to ask whether Echo Boomers will ever move out of the toughest economic times in decades. The unemployment rate for workers aged 20 to 24 is 15.7%. As writer Derek Thompson notes in the Atlantic Monthly, "You can't become financially independent on food stamps."
To make matters worse, much of Gen Y started the recession deep in debt. In 2006, the average public college student owed $17,250 from loans. That's more than twice the $8,000 in average debt 10 years before, according to the American Association of State Colleges and Universities.
"Gen Xers probably already have their first home," says Stephen Melman, director of economic services at the National Association of Home Builders. "Gen Yers are probably looking for their first job."
A Desire To Own
Despite all this bad news, Millennials are growing more confident about the economy over the last year, unlike older Americans, according to research from the NPD Group.
Almost half of Generation Y respondents said they were somewhat to very likely to buy a home in the next three years, according to a poll by the Concord Group taken in the first quarter of 2009. Like most housing research firms, Concord focuses on Echo Boomers who were born before 1990 and who are now old enough to have started their professional lives.
A little less than half of these Generation Y respondents expect to buy their first home by the time they are 30, and three-quarters expect to buy that first home by the time they hit 35, according to Concord.
That's reason for builders and dealers to cheer especially loudly, as younger buyers now account for much of the scant demand for housing. The number of first-time home buyers rose to 47% of all home sales from 41% of transactions in last year's study, and was the highest on record dating back to 1981, according to the 2009 National Association of Realtors' Profile of Home Buyers and Sellers.
Oh, the Urbanity!
These young professionals are widely supposed to desire a social, urban lifestyle.
In the Concord Group's recent Generation Y survey, 52% chose their current city for its lifestyle, the most popular response. "Nowadays you have Generation Y making location decisions first and then looking for a job," says Tim Cornwell, director of the Concord Group. Those locations tend to be one of roughly a dozen metro areas, including New York, Los Angeles, San Francisco, and Portland, Ore.
"It's a pretty small list," Cornwell notes.
Research shows Gen Y is, on average, willing to give up prized home features to live closer to work and other amenities: Two-thirds of Gen Y respondents say living in a walkable community is important to them. More than half would trade lot size for proximity to shopping or work and a third will pay more for this walkability, says Charles A. Hewlett, managing director for research firm RCLCO.
Even among families with children, a third or more are willing to trade lot size and "ideal" homes for walkable, diverse communities, according to RCLCO.
Compared to location, amenities provided by developers, such as a swimming pool, a game room, or wine storage, are much less valuable to Generation Y. Two-thirds called those amenities "not important," though a handful of Gen Y respondents were still enthusiastic about the pool, the Concord study found.
The most valued amenity? Safety. Just over half said secured access for the community was somewhat or very important. An exercise room and "community activities" were also important to well over a third or respondents, according to Concord.
Not Really So Different
Of course, it's possible to overstate the case that Gen Y favors dense, pedestrian-friendly environments and nothing else.
By they time they reach age 50, more than 60% of Echo Boomers see themselves "living the suburban dream," residing next to a golf course, or even becoming "a country squire with acres of land," according to Concord.
More than two-thirds say yard space is somewhat or very important to them, and close to two thirds value a "large lot," according to Concord.
And even though about 70% say their next home will be an apartment, condominium, townhouse, or urban loft, that still leaves close to 30% who plan to move into a home with a yard.
"We are much more traditional than a lot of people expect," Cornwell says.
Inside the home, a big kitchen is somewhat or very important to more than 90% of respondents. That makes the size of the kitchen the most important potential feature of the home, followed by an open floor plan. Also, more than 80% say having a place to park a car is important, the Concord study shows.
Clearly these Millennials don't expect to rely on buses and subways–though close to 80% polled by Concord would pay more to be located near alternative modes of transit.
Younger members of Gen Y, those now aged 20 to 24 years old, also value green building ideas and sustainable design. More than half say green building and sustainable design are "somewhat important," while more than a fifth say these features are "very important."
– Bendix Anderson is a freelance writer who lives in Brooklyn, N.Y.
Sizing Up the Generations
After decades of dominating America's demographic charts, Baby Boomers are being supplanted by Generation Y, aka Echo Boomers or Millennials. How they add up:
4 million births per year
3.2 million births per year
3.9 million births per year
4.1 million births per year
Source: Census Bureau