Oct092014

Desperate Baby Boomers need Millennials to buy homes

Baby boomers need Millennials to buy their houses at inflated values to fund the boomer’s retirements.

Who cares whether or not Millennials buy homes? Shouldn’t the Millennials themselves be the only ones who care whether they rent or whether they own? Shouldn’t the choice be one for them to make in consideration of their own lifestyles, needs, and goals?

Besides Millennials themselves, only two major groups of people care about Millennial homebuying: real estate industry professionals, and baby boomer homeowners. People in the real estate industry that make money on transactions — homebuilders, lenders, realtors — they want millennials to buy homes for obvious, self-serving reasons. The often overlooked group of interested parties is the baby boomers who want to sell their homes to fund their retirement.

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The banks needed to reflate the housing bubble to restore collateral backing to their bad loans as a matter of solvency and survival. The baby boomers needed to reflate the housing bubble to restore the lost equity they planned to live on in retirement.

Once they had the illusion of wealth created by the false price signals of the bubble, many baby boomers changed their behavior; many boomers slowed or stopped saving in other ways, many boomers made bad consumptive purchases disguised as investments, and many other boomers simply pissed away their illusory wealth on consumption through mortgage equity withdrawal. As a result, baby boomers are overly dependent upon the resale values of their homes to fund the entitlements they’ve become accustomed to.

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Even before the housing bubble created a great deal of false wealth, baby boomers were the recipients of an artificial boost in home prices due to 25 years of falling mortgage interest rates. At least 30% of the value of their homes was created totally by increased borrowing power of subsequent buyers. Today’s 4% mortgage rates represent the end of the road for the artificial appreciation based on falling mortgage rates. Future generations won’t be so blessed.

And therein lies part of the problem in the housing market today: future generations aren’t enthusiastic about overpaying for real estate, and sales volumes suffer at inflated prices. Today’s buyers don’t make the direct connection between their home purchase and funding baby boomer’s retirements even though the connection is very real; today’s buyer’s simply don’t want to pay so much for houses with little future appreciation potential, particularly when they know house prices can also go the other way.

Boomer Fiction

The following is a work of fiction that captures the desperation of baby boomers to find a millennial to step up and overpay for the boomer’s house.

Boomer says,

Each generation is called upon to make sacrifices. The baby boom generation was born out of the sacrifice of the previous generation that endured a terrible depression and a world war. The returning veterans wanted to enjoy the American Dream so long deferred, and they worked to build a great society so their children, the baby boomers, could flourish.

And flourish we did. We built America into the sole world power with the strongest economy on the planet. Now, it is time to pass the torch to the next generation. We are ready to fade into retirement and live off the social security and home equity built up during our working lives.

Unfortunately, you damn Millennials won’t go to work to pay for our social security, and you won’t buy our houses to provide us our hard-earned home equity. You suck, and I think you know it.

It’s time your generation learned something about sacrifice for the greater good, the good of your elders, the baby boomers. When we bought homes, we had to commit unrealistic percentages of our income to housing, lie on mortgage applications, and take out financing on unstable mortgage terms — and we did this willingly because we believed the next generation would make the same sacrifices to benefit their forefathers as we did.

We made these sacrifices willingly because the benefits were worth the price we paid. Look what those who bought before us received in return:

  1. Dramatic increases in wealth through home equity. I think we can all agree this is desirable. You want to be rich, right?
  2. The ability to spend more than what is earned through productive activities like work. Think of all the BMWs, Mercedes, vacations to Maui, Coach Bags, designer jeans, Rolex watches and other items purchased with home equity lines of credit. You want to double your spending power, right?
  3. The ability to buy furniture and home improvements without saving or spending income. Your house should be a self-sustaining asset which provides the ability to maintain itself with perpetual appreciation. Who would not want that?

We provided all of this to the buyers who came before us, and all we ask is that you do the same for us. Is not this a fair bargain? You want the same for yourself, right? If you do this, the next generation of buyers will learn from your example, and they will be willing to do the same. You are preserving the American Dream.

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Some have argued it is our fault the housing market crashed. If we had simply made our payments, the foreclosures and price destruction would have been avoided. I say this is rubbish. The lenders failed us.

They knew we could not make those payments when we took out the loans.

They knew we were not truthful on our loan applications.

They knew they were going to have to provide opportunities for serial refinancing of ever increasing amounts of debt.

They failed us.

They are the ones who ruined the American Dream, not us.

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The tightening of credit just means you will have to make more significant sacrifices to keep the American Dream alive. You may need to borrow money from family members or solicit larger gifts. You may need to become more creative in your attempts to inflate your income or assets. All we had to do was sign some fraudulent paperwork, but you may have to forge some documents or buy a seasoned credit line or find a hard-money lender who does not record the debt (loan sharks). It is going to be tough, but look at the benefits listed above. Is it not worth the sacrifice?

It is time for you to buy now. Trees really can grow to the sky; prices really can go up forever–if you hold up your end of the American Dream. To paraphrase Winston Churchill,

Let us therefore brace ourselves to our duties, and so bear ourselves that if the {American Dream} last for a thousand years, men will still say, ‘This was their finest hour.’

This is your chance to stand up for what is right and perpetuate a system that is beneficial to our society. History will remember what you do. Will you be the generation that lived up to its duties, or will this be the end of the American Dream as we know it?

You Millennials must decide. We’ve reached the end of government bailouts, the powers-that-be reflated the housing bubble so now you can bail us out, but we need you to act. Sitting on the fence or staying in your parent’s basement doesn’t help us, and quite frankly, it isn’t very American. You must get up off your lazy, entitled asses and buy a home today!

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