If the title of this post sounds vaguely familiar, it’s because it’s from a song in the 1958 Broadway musical Flower Drum Song. It predates “Kids” from Bye Bye Birdie, but had the same sentiments.
However, I’m not complaining about the younger generation; I’m worrying about them. Not surprisingly, these concerns blossomed after a call this morning from my 33-year-old daughter. She lives with her spouse and two children in a two-bedroom rented duet home (one that has one common wall). With housing prices potentially bottoming out, she was asking about her options in terms of moving into home ownership.
This got me thinking about all the post-Boomer generation, colloquially known as Generation X (or the “baby bust” for their lower numbers), born between 1961 and 1981. My daughter was born in 1976. What are her peers’ options for home ownership, especially in light of so many economic shifts? For example:
Down payments. Because of new qualification criteria, it takes a lot bigger down payment to get into property these days.
Employment issues. The downturn has impacted employment in a devastating way. Families that used to have two incomes are down to one. For the most part, people are making do, but are not saving a lot. Plus acceptable forms and proof of what income they have has gotten more difficult to produce.
Parental problems. Down payments in the past used to come from what were jokingly called “GI loans,” where GI stood for “generous in-laws.” But now many parents, having lost their nest eggs in the stock market or declining real estate values, are in no position to help out.
Aggravating the situation is the fact that (my daughter excepted, of course) we have raised a generation of kids accustomed to instant gratification. The idea of saving for something and going without is as foreign to them as Studebakers.
The outlook is not completely grim. As with most difficult situations, I believe we’ll come up with creative solutions.
Rent. This may be the simplest option. With more single-family homes sitting empty, housing rental (as opposed to apartments) may increase. If the federal government rescinds the mortgage deduction to boost tax revenues, this option may become even more attractive.
Lease or co-ownership options. Lease options or rent-to-own options popped up in the 1980s when interest rates were appallingly high. Essentially, you rented the property with an option to buy, and the cost of the option was computed into your rental payments. At the end of say, three years, assuming you’d made all the payments, your option was converted into a down payment.
This arrangement has its drawbacks, of course — you end up with a higher monthly payment than if you’re simply renting; you have to be confident that the place you’re in is the one you want to buy; you have to be confident that your employment will stay in that area; and it’s not always easy to know what the value of a home might be three years hence.
Equity sharing. This is akin to co-ownership, where somebody owns the house and you set up an agreement with them that you’ll eventually share ownership as well. This probably works best between family members; otherwise, it’s a partnership, and in my mind, those are the only ships guaranteed to sink.
Regardless of what happens, I have one strong recommendation for Generation X: stop spending what you don’t have and start saving what you do. You don’t know the economic future, but I maintain that it’s always better to be master of your real-estate destiny.