Should We Pray For a Housing Crash?

In May, a Michigan Facebook user declared, “The new Millennial dream is a housing market crash.”

More than 2,600 people Liked or Loved that sentiment; when a larger page recycled the post, it got approval from over 327,000 users.

Variations of this meme have floated around social media for years. Although usually presented as a joke, many people engage with the message at face value, egging on some sort of imagined disaster that would leave housing prices plummeting.

These sorts of comments reflect a deep sense of nihilism that’s particularly prominent in Millennial social media spheres, where many came of age or started their careers in the wake of the 2008 housing bubble and have since watched prices in cities like San Francisco soar to seemingly unreachable heights.

Just what is the real American dream for these Americans? And can homes ever become attainable for them without courting disaster?

The Millennial Condition

Many people of many generations wish and pray that housing prices go down, but these wishes take on a particularly grim bent with online Millennials.

“I’ve made that joke repeatedly myself,” Shanti Singh, a director for the SF-based renters’ group Tenants Together, tells The Front Steps. “It’s common gallows humor,” Singh admits. But “we all still remember how devastating the 2008 recession was,” and few really want a return to those days.

Go back to those aforementioned social media posts and you will encounter tens of thousands of people arguing about this same fear: That a housing crash will create knock-on effects that would at best restrict our ability to cash in on falling housing prices–or at worst could tank the whole economy for years.

(Freddie Mac)

But it’s not a surprise that some dream of blowing up the status quo anyway: A Freddie Mac report in 2021 noted that though Millennials are the largest American consumer group, just 43 percent of Americans ages 23-38 own homes.

For comparison, the national homeownership rate is around 65 percent, and for past generations (Baby Boomers and Gen X’ers respectively) the rate was 48 percent and 51 percent when they were this same age.

Nationwide, San Francisco had one of the worst Millennial homeownership rates in the country at just 25 percent–worse even than similarly expensive cities like LA, New York, and Boston.

A sobering Bloomberg analysis found that Millennials are more broke than their elders “in almost every way measurable,” pointing to runaway housing costs, inflation, debt (especially student debt), and stagnant wages.

(Of course, many people reading this are probably thinking something along the lines of, “Tell me something I don’t know.” )

Admittedly, more and more Millennials are joining the home buying class in recent years. But in May of last year a Bankrate poll found that 64 percent of Millennials polled say they regret something about their purchase.

While many of those regrets may be minor, the high rate reveals an environment where many feel pressured to buy for fear that the opportunity may never come along again in their lifetime.

“I hear that frustration all the time,” Nadia Evangelous, an economist with the National Association of Realtors, tells The Front Steps. “The American Dream is still there: People want to buy a home. Millennials represent the largest cohort of potential buyers. But inventory is low, and many can’t compete with cash offers.”

In short, many feel just plain desperate. And desperate people will consider radical possibilities.

Do We Want a Crash?

First of all, that depends on who the “we” in that question is.

It also depends on the alternatives. Most laypersons can imagine simple scenarios that make housing more affordable without violent disruption: For example, inventory could go way up, or earnings could greatly increase for struggling, debt-ridden would-be buyers.

As you can imagine, housing nihilists tend not to be terribly sanguine about either of those possibilities.

That being the case, some market watchers will tell you yes, a crash–or a less dramatic fall from current housing peaks–really would open doors for certain people.

“There’s the old saying that the best time to invest is when there is blood in the streets,” SF-based Compass analyst Patrick Carlisle tells The Front Steps. “The issue that comes up is [whether] it’s your blood.”

Carlisle does point to some factors that could drive down costs more gently: California’s population dropped recently and may continue, more and more people are still working remotely, and the state is putting intense pressure on even the most NIMBYish towns to build.

None of these things will get grim Millennials into a new home all on their own; but many small changes may combine to create opportunities for some. 

“Social issues, the economy, the weather”–any of these may make cities like San Francisco slightly less attractive for moneyed buyers and crack the door open for new ones. 

Although “then one has to live with the negative developments” down the line, Carlisle adds.

(Above: “Gallows humor.”)

But what about the larger economy? Laurence Kotlikoff, professor of economics at Boston University, argues that anxious Millennials should not assume that 2008 was a typical housing bust or that future ones will have the same apocalyptic overtones.

“There’s no real reason housing prices should affect the vast majority of Americans” who already own, “[unless] you have reporters telling people this will cause the next depression and freaking out,” Kotlikoff tells The Front Steps.

After all, “The majority of people are not moving. If prices go up or down, look around: You’re still in the same house, you’ve still got the same bedroom, same garage. What has changed? Nothing.” The on-paper value of your house changes daily–but for most folks, this doesn’t really matter.

“In terms of getting into housing, their best hope is a crash,” Kotlikoff says of those who have yet to buy. But he cautions that the benefit of declining prices is only real if other factors don’t wipe it out: “If the price goes down but mortgages go up by a rate of 20 and inflation stays low, that becomes more unaffordable” than when you started.

Others point out that change does not have to be sudden to be valuable, and that gradual easing is perhaps underrated by non-economists. “The market is now slowing, which will allow for the underlying fundamentals of affordability to come back,” quantitative economist Steven Thomas tells The Front Steps. 

“But, that will take time. Nobody should expect the rapid decline of the Great Recession. A buyer’s market would be a slow drift down” rather than a sudden drop.

The other analysts agree that a catastrophic “bubble burst” is unlikely, but a slow “cooling off” is on its way. Of course, it’s easy to glib about the fact that almost nobody ever expects a bubble; but it is true that history is more often measured in years than in days.

“Buy When You Can”

All that said, at the end of the day, it’s a sad fact of life that many people are just plain never going to afford a home in places like SF even WITH a crash.

Millennials are entering the homebuying phase of their lives later, broker, and with more obstacles than previous generations, and “Low-income housing is always dead last as a collective priority,” Shanti Singh notes. And SF remains one of the few markets where renting is usually cheaper than buying in the long run.

Naturally, this continues to drive interest in outlying regions. In SF in April, the median price of a house was over $2 million, but in Napa it was half that, and in Solano County a third of it.

Others continue to lean on housing lotteries, angle for bargains, or push for dream jobs with better pay. A crash or cool off will inevitably open the doors for some, but there is no magic bullet for all.

“My best advice: Buy when you can,” Thomas says. “Buy a condo. Buy something whenever it fits the budget. Then, do not look back.”

In the meantime, most will continue to play the long game–and see what happens.

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