Dr. Housing Bubble 02/07/14

[Crewleader]

Broke, young, and unable to afford a home: The crisis for young American home buyers and household formation.

Making homes unaffordable to younger Americans is more problematic than simply altering the living habits of upcoming generations. Housing formation in the United States is entering uncharted territory based on demographic shifts and also the new reality that younger Americans will be less affluent than their parents. This is why we have millions of younger Americans living at home with parents. Some may not view this as an issue but in the past, construction was a big part of GDP and you will have a hard time justifying new housing construction if people are simply living at home or are only able to afford a rental. The student debt crisis goes hand and hand with the unaffordable nature of housing for young Americans. It also doesn’t help that Wall Street is crowding out regular buyers in the market. With a growing population and investors eating up the low supply of housing, many young Americans are essentially in the position to move back home or to rent. Buying is a remote possibility for many Americans and this has put a clamp on new housing formation.

Household formation

In stable markets you would expect that housing starts and household formation would track closely to one another. Builders can predict (to a certain degree) how many homes to build for upcoming families based on demographics. Yet this becomes difficult to predict when a large portion of those coming up are simply unable to afford a property. In the early 2000s toxic mortgages and no due diligence allowed anyone with a desire to buy to do so. So of course, when we look at household formation early in the decade we find that formation was far outstripping housing starts. If the bank is offering you crazy amounts of money for a nice place why would you say no? The bank is looking out for my interest right? At least that with greed mixed in led to the biggest housing bubble of all-time.

Here is a chart of both household formation and housing starts:

http://www.doctorhousingbubble.com/broke-young-and-unable-to-afford-a-home/