Why Gen X is to Thank for the Urban Baby Boom
Cities are having a baby boom, according to Trulia’s Jed Kolko’s analysis of recent Census data. Some seem surprised by this. Some are quick to say it represents a huge shift in behavior. Imagine, cities with children in them! Sure, it’s a big deal. But it’s also not surprising and not necessarily going to stay that way. Why not? Not because of the generations that get all the press – millennials and baby boomers – but because of the forgotten middle-child of generational studies, Gen Xers. And yes, that was a very Gen Xer thing to say. I’m a Gen Xer, I can do that.
The National Association of Realtors would tell you that in the previous decade, the median age of a first-time homebuyer was between ages 30-32. Gen Xers would have passed through those years during the 2000s. So it’s fair to say that in the 2000s, Gen Xers were buying their first homes. Now they’re in their mid-30s or 40s. The housing market was doing exceptionally well for the first two-thirds of the last decade. If they bought slightly around 2006 or 2007, they bought close to the top of the price curve.
You’ve heard the phrase “buy low, sell high.” That is a great strategy if you know what low is and what high is. With housing, it’s complicated because, while your home is likely the bulk of your net worth, it’s also an investment you make dictated to some degree by lifestage. Unlike a 401k, you don’t keep investing it, either. You don’t set aside a portion of your paycheck each month and therefore invest in good times and in bad. You do it all at once and hope for the best.
Therefore you might not get to choose when in a market cycle you buy. You buy when you’re getting married, or graduating college, or having kids, or simply when you’ve saved enough and your lease is up. Right?
Now fast forward. When Gen Xers bought in the 2000s, it was likely their “starter home.” Maybe they planned to have a kid or two and move to someplace larger or with better schools. Likely, to the suburbs.
But then the bottom fell out of the market. Housing values in many cities are still well below what they were when this cohort was buying homes. Also, this cohort had easy access to credit, so many bought with less than the traditional 20 percent down payment. In some cases, far less. Given that the age of first-time homebuyers hasn’t changed much, but the age of first-kid-having has crept up, it’s not really all that surprising that people are having their kids in their “starter” homes or condos. It’s also not surprising that the starter places were in the city. Is it? Millennials, who, while slow to start their own households, have typically been more urban and are also entering the child-having period of their lives.
It’s not necessarily a lifestyle choice to have kids in the city. It’s a necessity because moving to the suburbs or a larger home might be a double whammy. If your home is worth less than when you bought it, you have to take a loss on the property on the sale, and you don’t have any meaningful equity to use as down-payment money on the purchase side. So you’re stuck.
Here are a couple of other telling stats from the Realtors: People are staying in their homes longer (now nine years, up from six years in 2007), and the age of repeat homebuyers has been steadily increasing from 46 in 2003 to 52 now. Meanwhile, the share of buyers who are first-time buyers remains below normal.
If those stats put together don’t read as, “people are still stuck in their homes,” I don’t know what does.
All of this sounds, to me, to be economic in nature and therefore not too surprising. As I’ve written, many don’t have a choice about where they live. For lower income people, especially, being able to choose where to raise your kids can be an unattainable luxury. For those who do have the choice as the housing market continues its rebound, will they stay put in the cities, or head for better schools and bigger yards as so many have done before them?
Further, Kolko’s analysis shows that the millennials are suburbanizing. They (mostly) don’t have the baggage of an existing home to weigh them down. That they are not “flocking” to the cities and are, to some extent, heading for the ‘burbs is telling.
There are certainly those who will choose to keep raising their kids in the cities. That will be a welcome shift and one that needs quick policy adaptation in order to sustain it. Schools, parks, playgrounds, transit and zoning will all need to accommodate a younger crowd.