The Greater Recession: Millennials and Housing

by Troy M. Olson

Sallie Mae
“Demographics are destiny.”

Despite spending most of my adult life in the public, academic, and non-profit sectors of the economy, at least until recently, I actually grew up a child of the private sector—the housing industry to be specific. Between housing services and residential investment, the housing industry makes up about 17-18% of GDP. If you’ll recall back before the worst of the financial crisis in the fall of 2008 (an event that ensured a landslide victory for President Obama if that wasn’t assured already), you’ll remember that the housing bubble burst due to credit default swaps and too much subprime lending to those who could not afford to keep up with those payments. While we may magnify the “special” characteristics of our recent human experiences, what happened from 2007 to 2009 is neither particularly special, nor great, but incredibly common. The housing industry is nearly always the first part of the economy to slow down just before a recession hits, and it is also the first to recover from the worst effects of a recession.

In 2009, when most of the country was in the midst of the worst of the recession, the American Recovery and Reinvestment Act (aka, the near-trillion dollar Economic Stimulus Package) confirmed two things: one, it helped keep companies like the one my Dad has worked for his entire adult life from having to lay off workers (both manual labor workers in the plant, and some office staff), and two, it confirmed that despite the pronounced ideologies of many American politicians during Boom-town days, when things get tough—everyone becomes a Keynesian.

I start with the housing industry and my connection to it because I know for sure that real work was being done, jobs exist, houses need to be built, set, and buttoned up, etc. I know from my entire life’s experience that those in housing services are hard working members of the real economy. The story we all remember from the last recession is the story of the financial services sector of the economy, characterized best by the continued rise and fall and bail-out story of Wall Street.

I was fortunate growing up to live in a comfortable middle-class home, town, and general existence. However, because my Father worked in the private sector, there were good years and bad years. Like clockwork, a bad year for him meant that there was often a recession in the United States the following year. This relationship is actually quite simple. Most Americans cannot afford to buy and own a home outright, they need financing. Enter mortgage and insurance companies.

I hear a voice in the corner saying that “my parents or I plan to go with the small independent mortgage and insurance company.” As adorable as that sounds, like any other privately owned corporation, whether closely held or publicly traded these companies want to grow too. In order to grow, small mortgage companies often sell off their mortgages to bigger institutions in order to gain access to increased capital. Which means that eventually, all roads lead back to Wall Street investment banks and, in the case of home financing, the secondary mortgage markets, popularly known as Fannie Mae and Freddie Mac. Sound familiar? Are you with me? Good.

Yes, I’m fully aware that linking to “It’s All Coming Back To Me Now” by Céline Dion is not a popular move. Like me, you probably went crazy during 1997-98 when Titanic and it’s Academy Award winning song “My Heart Will Go On” played nonstop. However, there is a method to my madness. Like that song, this story just will not go away, rather it will go on and on…

Home financing with mortgage and insurance, mortgage-backed securities traded on secondary markets, and all roads lead back to Wall Street. This relationship has grown more and more pronounced during the lifespan of the Millennial generation.  In 1980, financial services constituted 4.9% of GDP, up from just 2.8% in 1950. Today, financial services constitute at least 8.3-8.4% of GDP and in, 2011, surpassed their pre-recession peak. So it’s possible that it is even higher today. After all, housing has had a few pretty good years in a row.

One factor weighing heavily on homebuilders, the media that covers the housing market, and policy-makers is: why aren’t the Millennials buying homes? The short answer: we do not have any money. The longer answer: if we were to buy homes right now that would lead to a chain of events very similar to the risky lending that led to the Great Recession. Thankfully, enough tightening of lending has taken place that even the Millennials that have some money have a tough time securing financing.

Take your pick Millennials: you can either get ridiculed for renting or living with your parents or you can be blamed for the circa 2019-20 Great Recession. The good news is, our priorities are much more connected to the real economy than what Boomers in the private sector would prefer. The bad news is, we’ll be blamed for the circa 2019-20 Great Recession anyway.


With all due respect to the venerable “Agreeing Loudly” flagship podcast team, who this past weekend discussed the places Millennials (and older generations) are buying and owning homes, but overall, Millennials, despite their demographic enormity, do not have the financials at hand to save the U.S. economy from an eventual housing market slow-down. For years, the U.S. has depended on the housing market, auto, and consumer spending to speed up recoveries after recessions. However, both the finances, massive student debt situation, and genuine preferences of Millennials, will make this considerably more difficult than in past years. Problems like wealth disparity, high cost of living, wage stagnation, and extremely high housing prices are even more acute in the large cities where Millennials are increasingly turning to for economic and career opportunities.

In three or four years time, Millennials will still be in no position to buy homes en masse. While it may be in U.S. economic interests for us to start buying, and certainly in the best interest of Boomer owners and managers hoping for one more private sector sales cash-in before their retirement, it is in Millennials best interest to pay down their student debt to Sallie Mae (sounds familiar doesn’t it? see above), save some money, and continue to pursue their sacred American right of happiness. For many Millennials, happiness has been about prioritizing experiences like domestic and world travel, buying gourmet coffee and yoga pants, participating in the sharing economy in order to gather material for their screenplays, etc.

If Millennials end up having children at the same rate as their parents, the number of children they have will be less because we are off to too slow of a start already. Furthermore, the children our generation does have will not have as much spent on them as we had spent on us. Many of our own experiences inform us that it is better to pass on values than shower someone with money. Economically, it is highly likely that the Millennial generation becomes a “lost” one, but that does not mean we have to be that way politically, culturally, and socially. We still have time. We still have a huge opportunity to do a lot of good for our country and the world.

Boomers and the emerging Gen-X conservative leaders will no doubt blame Millennials for the next recession. But the events I’ve described are merely the business cycle and our inability to step in demographically due to built-in financial restraints caused by older generations and the public policies they pursued. Millennials following their self interest, rightfully so, will certainly play a big role in leading to an economic slow down, but that itself is not a Great Recession.

Follow the next part in this series when I’ll detail the forces and factors that will cause the next Great Recession.

The Greater Recession: Boomers and the 401k Cash-In


3 Comments Add yours

  1. Historically, the west tended to look at an unmarried over 40 or 50 which included a slightly dim view. Some may have felt sorry to have a middle aged

Leave a Reply

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out /  Change )

Google+ photo

You are commenting using your Google+ account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s