Monday, August 31, 2009

Youthful exuberance: Age and the housing bubble

The internet does not produce any non-self-referential data; it simply makes the data easier to find and faster to obtain. Still, if this drops below some threshold, some people might get into investigation who might not otherwise would have bothered -- and that's as good as producing new data, since unexamined data do not really exist. Probably the best result of this is the ability of people with computers to figure out if a popular story is true or not.

One story that was everywhere in the media not too long ago -- although it has probably since been crowded out by all the news about the collapse of the global economy -- was that young people today refuse to grow up. In particular, they were supposed to be opting more than ever before to live at home and freeload off their parents well into their 30s. This story broke into the mainstream when Time Magazine ran a cover story about twixters, the goofy name for these aging slackers. Around the same time, MTV devoted an episode of True Life (a popular hour-long documentary show with different topics each week) to young people who were moving back with their parents.

These stories were circulating during 2005, at the height of the real estate euphoria, so the inference is that young people were being left out of the housing bubble. The greatest beneficiaries must have been older people starting a family, or perhaps middle-aged speculators looking to "flip that house." But rather than take the tales at face value, let's see how well or how badly the bubble treated young people, using housing data from the Statistical Abstract of the United States, which begin in 1982 and go through 2007.

First, here is the distribution of homeowners by age, using coarser and finer-grained age groups:

It would seem from the first chart that homeowners were becoming grayer, but the youngest category is pretty wide -- "under 35." Looking at the finer-grained chart, we see that those under 30 seemed to be doing pretty well, especially since their low in the early 1990s. This looks especially true for the under-25 group, but it's hard to see in the chart. To get a better view, here is the homeownership rate for the under-25 age group over time:

Indeed, they were treated quite well by housing bubble that began in the late 1990s. Just eye-balling it, there is a gain of about 10 percentage points -- or about a 67% increase. But maybe they were nothing special, and the other age groups had similar increases. Let's have a look at how their rates changed from the early-'90s low to the peak in the mid-2000s:

The middle-aged age groups and above tend to have homeownership rates of at least 70%, often 80% or higher, so there is only so much room for them to gain before they hit 100%. That's why their increases aren't so great. The increases among the elderly reflect a steady increase since 1982, unlike the ups and downs that every other age group went through, so they're a different story.

But for the younger age groups, all of them had lots of room to gain, and yet it was still the very youngest whose rates shot up the most in relative terms. Clearly we were all fed a bunch of bull about 20-somethings refusing to make it on their own, mooching off their parents forever, and so on. A priori, that story should have sounded implausible since the 20-somethings of 2005 had come of age during two frenetic economic booms separated by a quite tepid recession. It sounds instead like the world was their oyster.

(I was a mid-20-something living and working in Barcelona at the time-- something I couldn't dream of doing now, with the Spanish economy in ruins. And even though housing became cheap after their real estate bubble burst, it wouldn't be any fun this time around since the euphoria has dissipated.)

How can we get a good intuitive feel for how spectacular the housing bubble was for young people? Let's compare their percent increase in homeownership rates to other not-so-credit-worthy groups. Many commentators have pointed to the increase of homeownership among Blacks and Hispanics, but their rates only increased by just over 10% and 20%, respectively. They started fairly low too -- not like the middle-aged -- so their increase was similar to the 25 - 29 and 30 - 34 age groups. Nothing close to the gains of the under-25 group. The same is true for single mothers, whose rates increased by under 20%.

As far as I can tell, young people were the greatest beneficiaries of the drive to debauch lending standards, especially the move to do away with down payments. After all, how much money could you have saved up by that age to put down? Forget the fact that what little you did earn you probably piddled away on your car, electronics, beer, shoes, handbags, and so on.

These data underscore the importance of paying attention to age as a demographic variable, something that we rarely do, except to whine about how youth-obsessed our culture is (or is becoming). That's not true either, but in any case, we already have lots of analysis based on race or ethnicity, sex, class, and even sexual orientation. Age is typically a far stronger cause of differences than any of those, yet we neglect it too often. This may reflect how homogeneous our social circles are by age, so that differences across age groups don't automatically spring to mind. Still, we should make a conscious effort to pay better attention to age when trying to figure out how people and their societies work.

1 comment:

  1. not too surprising. the will-always-appreciate mentality really captured the minds of some of my friends who levered up to buy much earlier than they otherwise would have. the key is that for them a house was not a place to live, it was an investment which they would dump when they relocated. or that was the plan....