There is good news for the Golden State and the rest of the nation. Since the economy imploded in 2008, I must admit that I’ve been as pessimistic as many others have been about the housing market and the ability of mortgage lenders to effectively finance residential homes.
In fact, just two short years ago, I was quoted in a New York Times article as saying that “fear and uncertainty have stifled growth” in our communities, especially in California. As a result, they have adversely impacted new home purchases and jumbo mortgage residential lending — with a jumbo loan defined as a mortgage with a loan amount exceeding the conforming loan limits set by the Office of Federal Housing Enterprise Oversight, and therefore not eligible to be purchased, guaranteed, or securitized by Fannie Mae or Freddie Mac. For the purposes here, California jumbo loans are those loans greater than $625,500.
However, through all of the darkness, the one positive key metric that kept me going was demographics. Good, old, boring demographics — I loved how the demographics undeniably told us about the promise of the coming generation of homebuyers.
I tried remaining positive, as I constantly reassured my real estate colleagues not to worry, that the “echo” boomers are slowly and confidently sitting on the sidelines in large numbers, waiting for the right moment to move into the market and start buying like we haven’t seen since their parents, the original boomers, did in the 1970s and ’80s.
Frustrating as it was, as months and years passed, I simply wasn’t seeing such a movement — it was like Simon & Garfunkel’s “Sound of Silence.” As a jumbo mortgage banker, I nevertheless continued working hard to find new programs and new investors to prepare for the wave to come. I just knew that as each day passed, there was a generation of new homebuyers that were waiting for their time to come.
There are rumblings to be heard, and now is the time to be optimistic. These 18- to 34-year-old echo boomers, also known as the millennials, the boomerang generation or Generation Y, represent roughly the same numbers as their parents did a generation ago: 80 million boomers and 80 million echoes, according to 2010 U.S. Census Bureau statistics.
For the most part, they have been hiding in their parents’ spare rooms and basements, during this Great Recession, rather than looking for that first home to buy. But, as of late, there’s been a noticeable change in the direction of the wind — the echoes are beginning to be heard (and seen) in the California housing market.
Over the past 24 months, I’ve observed a perceptible increase in the number of first time homebuyers. In the majority of cases, they are young professionals in their mid-30s, married with working spouses, just beginning to start a family, working for a number of years in their field, and who carry a significant amount of student loan debt.
They are well educated, aggressive and confident. Contrary to the current negative view of our economic future, they are not afraid of prices or multiple bids on properties, and appear on the scene prepared and equipped with online research and property options. Because of California housing values, they are in need of jumbo mortgages. There are scores of them, and they are emblematic of their generation.
California whispers create national echoes. As has happened so often since the end of World War II, California is proving to be the bellwether for a resurgence in home buying. After all, more people live in California than in any other state in the country.
More than 13% of all housing units in the country are in California, and it follows that one in every seven real estate transactions in the U.S. occur in the state, with the majority of jumbo loans originated in the entire country occurring in California.
Recently, we heard that the housing market is really beginning to boil: This amounts to an increase of 20% in new homes built in the past 12 months and national home prices surging 9.3% in the same period, with an increase of more than 14% in Los Angeles, according to the S&P Case-Shiller home price index.
And, despite news every 20 years or so that suggests the California bubble has burst and that housing won’t ever recover, on average property values in California have appreciated at a constant rate of 6.6% year-over-year for the past 50 years. Along with earthquakes, fires, recessions and wars, home values have doubled in California every 10 years over the long term.
The stage is set for a real recovery.
In California, and across the nation, echo boomers — who already make up 31% of all recent home purchases, according to the National Association of Realtors — will shape the next two decades of the housing market. I believe that this generation, because of its home-buying potential, will also carry the nation’s economy to a full recovery. And the sound won’t be silent; it will be a reverberating boom.
