"Facebook Generation to Defriend Housing Market"

From the Council on Foreign Relations:

Many American policymakers, not least at the Federal Reserve and the Treasury, continue to pin hopes for a robust economic recovery on the housing market. They should consider that one demographic particularly badly hit by its collapse has a long memory. That's because they're young. They'll be around for a long time, and will bear the scars of the crash both financially and psychologically.

The change in home ownership rates from the 1996 trough in the Case-Shiller Price Index to its 2006 peak was by far the greatest among the under-30s. Total household home ownership rates increased 3.4 percentage points over this period, to 68.8%. For 25 to 29-year-olds, however, the increase was a much higher 7.1 percentage points – to 41.8%. For under-25s, it was 6.8 percentage points – to 24.8%. The rise in home ownership among the young was particularly remarkable given the lower base from which it started.

The cause is clear: easy credit. During this 10-year period when house prices were rising robustly, the young were an obvious target for aggressive mortgage pitches, backed by generous government subsidies. They had little in the way of capital to fund down payments but solid enough earnings prospects, at least in a buoyant market, to make monthly interest payments.

In 2006, the year in which under-30 home ownership rates peaked, more than 25% of home loans required no down payment. From the perspective of young labour-market entrants, home ownership may have made little practical sense, as they were likely to be itinerant and experimenting with careers, but it did look like a sure route to quick wealth.

What effect did the housing bust have on them? Household balance sheets among the Facebook generation were the hardest hit: between 2007 and 2009, half of those under the age of 35 lost over 25% of their wealth. A quarter of those under 35 lost over 86% of their wealth. Not surprisingly, they have been badly hit by the foreclosure tsunami; the median head of household in foreclosure being eight years younger than the median not in foreclosure. Younger households typically started off with less wealth than older ones and, following the bust, ended up with much less....MORE

HT: The Grumpy Economist who writes:

Last week Benn Steil wrote a very interesting oped on housing. (Originally at Financial News) He unearthed the amazingly large number of young people who bought houses in the boom, and then lost a lot when house prices fell. One quote:

What effect did the housing bust have on them? Household balance sheets among the Facebook generation were the hardest hit: between 2007 and 2009, half of those under the age of 35 lost over 25% of their wealth. A quarter of those under 35 lost over 86% of their wealth. Not surprisingly, they have been badly hit by the foreclosure tsunami; the median head of household in foreclosure being eight years younger than the median not in foreclosure. Younger households typically started off with less wealth than older ones and, following the bust, ended up with much less.

This bodes badly for their future, and the country’s

I wrote back, and the following exchange might be useful for blog readers here.  We don’t come to hard and fast answers, but I think we clarified a lot of channels that do and don't work.

John:
Your oped was very interesting, but I have to disagree with a basic point.  Lower house prices are great news for the majority of young households.

They either don’t own a house or are looking to trade up. Cheap stocks are also great news for them. Even those that lost money in one house will still want to live in houses for a long time, so they can buy a new house for the same low price that they sell their old houses for.  Lower prices are only bad news for old people who want to downsize. ...MUCH MORE