Is Generation X Responsible for the Real Estate and Mortgage Problems?

Monopoly Houses I came across an interesting article from ABC News (Australian Broadcasting Corporation) that discusses the current housing crisis and breaks down what type of person or family is affected the most. Their focus is more on the affordability of housing and rent and not so much on the declining real estate prices here in the U.S. Even so, I began to wonder if there was a generational connection to what we’re experiencing here, or if it was just a matter of coincidence.

Generation X’s Place in the Economy

If we look at the position of Generation X in the economy, a noticeable trend emerges. The majority of those in this generation that attended college graduated in the mid- to late-90s. What was the economy doing then? We were in the midst rapid technology growth, and the sky was the limit. The economy was on fire, high-paying jobs were almost being handed out upon graduation, and life couldn’t have been better for this generation.

This generation didn’t physically experience some of the negative economic concerns that were around in the 1970s and 1980s. For the most part they were too young to know what was going on, and it was their parents’ problem. But without being able to experience or understand the effect of inflation rates in the double-digits and what a bear market feels like, this generation had unbridled optimism as they set out on their own.

Education and Family Values

Generation X was fortunate enough to reach adulthood during relatively good economic times. One striking difference about this generation compared to those prior has to do with starting families. Unlike past generations that typically got married and had children at a relatively young age, for the first time, a generation was being pushed to become educated beyond high school in an attempt to take advantage of the shift from an industrial to information and service-based economy.

This push for additional education forced a lot of people to delay marriage or having children until college or beyond. This presented a unique opportunity for people who were finding themselves entering the job market in the 90s. Without a family or children to support, the booming economy presented opportunities that most young adults could only dream of. Unlike their boomer parents who typically worked blue-collar jobs and didn’t venture far from their roots, many Gen Xers saw an opportunity to take dream jobs almost anywhere in the country.

More Income Available for Housing

Since people were not often bound to their hometown by a spouse or young child, this allowed new graduates to pick up and move to the hottest areas in the country. Of course, with the salaries being offered and few financial obligations, this meant many could buy the house of their dreams at a very young age. Hey, it was the 90s, and they were sure to make even more money as their employer grows and the value of their home doubles in a few years, so why not.

Instead of just trying to find a roof to put over their family’s head, manyhad the income and freedom live excessively during this exciting time. This doesn’t mean that everyone bought McMansions, but without the other financial obligations, I think that many still dedicated too much income towards housing and went beyond the basics. Real estate at the time was seen to have almost unlimited upside and virtually no downside.

When Life Changes

As we know, life isn’t static. People get married, have kids, and in the case of the technology bubble, it also meant lost jobs. Suddenly, those living the high-life are faced with increased expenses and potential income loss. This is a bad situation to be in if you were dedicating 30-50% of your income to housing. Now, the generation that has experienced nothing but good times is completely lost.

Of course, this doesn’t apply to everyone, but it illustrates the importance of planning. Young professions who have experienced nothing but prosperous times during their short adult life had little reason to prepare for the bad cards that can be dealt in the game of life, so more attention was spent on the here and now.

Could It Have Happened to Another Generation?

Of course, you can’t completely discount the effect that extremely easy money and loose lending practices had on this situation, but I think this is more of a byproduct of what was happening in the economic climate in the 1990s. Unfortunately, this just made the problem more widespread and severe as consumer greed just drove more corporate greed. When you combine a generation of people who were possibly biting off more than they could chew and leaving themselves unable to cope with economic changes, you find the effect on housing, real estate, and credit to be very significant across the board.

Was the state of the economy, birth of technology, and bubble markets that followed something that would have happened regardless of what generation was behind it? Quite possibly. Was it our generational traits that resulted from being raised by boomer parents, influence from technology and the media, and expectation to obtain further education that set us up to fuel this new consumer-driven economy and overzealous market? Or was it simply a case of bad timing? I don’t know if there is an answer, but I find the possibilities intriguing. What do you think–are we the cause, or just victims of chance?

Author: Jeremy Vohwinkle

My name is Jeremy Vohwinkle, and I’ve spent a number of years working in the finance industry providing financial advice to regular investors and those participating in employer-sponsored retirement plans.

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