Landmark Links January 27th – Growing Pains

toyotas-swagger-wagon

Lead Story… They say that a picture is worth a thousand words.  IMO, if that’s true, a good chart is worth at least 2,000.  The following chart, which I found on Calculated Risk was the basis for one of the main themes on the blog last year: the aging of the Millennial generation and it’s impact on both the for-rent and for-sale housing markets.

demographics

Millennials are the largest generation in US history and statistically, they are entering their prime household formation years later than previous generations before them for a number of reasons, not the least of which are the Great Recession and ever-growing student debt burden.  This has resulted in a falling home ownership rate, an epic rental boom and soaring urban infill property prices.  All the while, traditional housing growth markets – the suburbs – have largely stagnated.  Stories like this demographic inflection point tend to stay in the shadows, showing up only in discussions among economists, demographers and real estate / finance bloggers until a mainstream journalism outlet picks them up.  This week, Conor Dougherty at the NY Times did just that in an article entitled Peak Millennial? Cities Can’t Assume a Continued Boost From the Young

Over the past decade, many American cities have been transformed by young professionals of the millennial generation, with downtowns turning into bustling neighborhoods full of new apartments and pricey coffee bars.

But soon, cities may start running out of millennials.

A number of demographers, along with economists and real estate consultants, are starting to contemplate what urban cores will look like now that the generation — America’s largest — is cresting.

Millennials are generally considered to be those born between the early 1980s and late 1990s or early 2000s, and many in this generation are aging from their 20s into the more traditionally suburban child-raising years. There are already some signs that the inflow of young professionals into cities has reached its peak, and that the outflow of mid-30s couples to the suburbs has resumed after stalling during the Great Recession.

Dowell Myers, a professor of demography and urban planning at the University of Southern California, recently published a paper that noted American cities reached “peak millennial” in 2015. Over the next few years, he predicts, the growth in demand for urban living is likely to stall.

I would only quibble with one item in the passage above.  It’s not peak Millennial, it’s actually peak urban Millennial.  Why? Young people have a much greater tolerance for living in tight quarters than do older folks.  Plus, as Millennials begin to enter their mid-to late 30s and (finally) become parents, it’s much more difficult and expensive to raise children in the city.  That studio apartment in a prime location is awesome when you are young and single but loses it’s charm once you are married with young kids.  Plus, staying in the city often means shelling out money for expensive private schools and schools play a central role in housing decisions once a couple has kids (as someone who has been through this recently, I know).  There’s an interesting analogy to the late 1970s which was the last time that we had similar demographics.  Again, from the NYT (emphasis mine):

The last time the nation had a huge bubble of 25-year-olds was the late 1970s and early 1980s. Then, like now, an influx of people in their early 20s moved into cities. There were newspaper articles about young professionals gentrifying urban neighborhoods; “Changing San Francisco Is Foreseen as a Haven for Wealthy and Childless,” a New York Times headline said in 1981.

Each era has its economic challenges, and many millennials had the misfortune of entering adulthood during the Great Recession and its aftermath. The people at the tail end of Generation X, who came after the baby boomers, were born in the low-birth years of the late 1970s and entered adulthood during the late 1990s financial boom.

There is an important difference between the 1970s and our current situation and that difference is commuting.  High income employees are spending more time at the office and less with their families today they they were back then.  In addition, it is far more likely presently that both husband and wife work.  As such, high income, dual earners are more apt to live closer to their workplaces in order to maximize their free time rather than spending it commuting.  That’s why I don’t believe that we are headed towards a period of mass exodus of high earners from cities like what happened in the 1980s.  In addition, there isn’t a demographic cliff that we are going to fall off of as the Millennials age.  It seems logical that the shift will be more subtle this time.  However, the demographics certainly appear to point towards a period of growth for the suburban home buyer rather than the urban renter.  It’s easy for a hipster to say that he or she is never going to live outside of the city when they are young and single.  That statement becomes a lot more difficult to make when you have a family to take care of. Suddenly the minivan and the house on a tree lined street in the suburbs might not look so bad.

Economy

Sea Change: The private equity world could be in for a massive shake up that will change the way that the entire industry has done business for decades if a new plan making it’s way through Congress is enacted.  There are both carrots and sticks in here and the impact will be profound.

Scapegoat: Trade deals are not the reason that American manufacturing has been gutted and there are thousands of years of proof.

Trouble Ahead: It now costs families more to care for a frail older adult than to raise a child for the first 17 years of her life.  This is unlikely to change anytime soon as the massive Baby Boomer generation continues to age.

Commercial

Running for the Exits: Mall landlords are increasingly walking away from struggling properties and sending the keys to lenders for them to clean up the mess.  See Also: Retail malaise puts pressure on chains to shutter more stores.  There are going to be some yuge redevelopment opportunities that result from this.

Residential

Rise of the YIMBYs: California’s ongoing housing crunch is spurring a growing movement of development advocates.  See Also: It’s going to take a lot more than the feel-good drop-in-the-bucket affordable housing initiatives coming out of Sacramento to fix California’s housing crisis.

Party Like it’s 1999: Surging demand and improving but still-weak housing starts leave inventory at its lowest level since the turn of the century.

Profiles

The Deluge: How Los Angeles went from bone dry to 216% above average rainfall in four months of what was supposed to be a dry winter.  Hint: the weather guessers don’t have a clue.

Oozoo Boo Boo Doo Doo: New study finds that puppies actually love baby talk.  This made my year.

Eccentric: Doomsday prepping isn’t just for toothless hillbillies in tinfoil hats anymore.  Silicon Valley billionaires have brought it to the next level.  Remember kids, when you are  poor you’re crazy but when you’re rich, your are eccentric.

Chart of the Day

Most days, I like to put something interesting or insightful in this space.  Today is not one of those days.  This is possibly the stupidest/most useless finance charts I’ve ever seen.  “I’ll take Journalists Who Don’t Understand Math for 20,000, Alex.”

WTF

Vegas.  Always.  Wins.: There were more bets placed on the Cleveland Browns to win the Super Bowl than there were on the Atlanta Falcons before the 2016/2017 NFL season began.  Let that sink in.

How to Make Your Car Millennial Theft Proof: Step 1: buy a car with a manual transmission.  Step 2: park you car anywhere, unlocked with the keys in it and laugh when would-be Millennial thieves try to steal it because they  don’t know how to drive a stick shift.

Seems Reasonable: Kansas man admits to robbing Kansas bank in order to get thrown in jail to escape his wife.

Landmark Links – A candid look at the economy, real estate, and other things sometimes related.

Visit us at Landmarkcapitaladvisors.com

Landmark Links January 27th – Growing Pains

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