In order for first-time homebuyers to return to the market, affordability has to increase. In the current economic environment, that can be accomplished in three fundamental ways: rising incomes, declining housing costs and increased savings.
At first glance, those observations may appear to be obvious or self-evident, but they are not.
In the post-World War II economic environment, as I've written about on numerous occasions, income increases do not lead consumption, housing costs do not decline in nominal or real terms, and the saving of liquid reserves to be used for transaction costs associated with a home purchase have become almost irrelevant as little- or no-money-down mortgages have become ubiquitous.
In that environment as well, the normal rebound from a period of recession or slow economic growth started with a resurgence in housing consumption, which was then followed by growth elsewhere, rising jobs and incomes, and the return to secular economic growth.
This is what occurred following the last housing crisis associated with the savings and loan crisis of the late 1980s and early 1990s. Monetary and fiscal policymakers, along with financial market regulators and banks, have been waiting for the past decade for that process to play out again.
Of course, it has not, and the need for something to encourage the process has finally been recognized by all these folks in the last year or so.
The reality appears to have sunk in with all of them that a house is a consumption item and that every subsector involved in housing must compete not only vs. the perceived benefits of renting, but for the allocation of consumer disposable and discretionary outlays with every other consumption item.
That means the mortgage companies, mortgage insurance companies, builders, real estate brokerages and federal agencies must each do their part not only to make housing more affordable vs. renting, but more attractive to consumers and preferable to the other consumption items available to them.
That's a radical shift in thinking for them all, and it's long overdue.
How much of this shift in thinking is conscious and purposeful, and how much of it is simply the result of financial need, I'm not sure.
A primary residence has always been a consumption item, but the industry for decades has deluded itself into believing the line it has sold buyers; that a home is an investment and that homeownership must come at the expense, loss or postponement of something else that is perceived to be life-quality enhancing.
As such, the industry has always considered its primary competition to be savings and investment vehicles: a bank savings account, individual retirement account, pension plan or cash account for investing in mutual funds, stocks, etc.
The problem in that reasoning and strategy is that these vehicles are funded from discretionary income, and the younger generation has substantially less of that than previous generations.
The result is that the industry has historically positioned itself with a product that is marketed to a portion of personal income that is largely no longer available -- savings.
That means that in order to attract first-time homebuyers, the industry needs to position itself as a more attractive place for consumers to allocate existing income, which means reallocating it away from areas it is currently being spent on; and again, not just rent.
By attractive, I mean the perceived immediate gratification of being a homeowner is considered to be greater than what is received by spending on autos, travel, personal technology and experiences; not just that "investing" in a home reduces housing costs and increases financial security over a long period of time.
The changes the industry has instituted in the past year to drive down housing carry costs have achieved much to set the stage for that shift in thinking to occur by the younger generations soon.
The stocks of the companies that had benefited from the shift in consumer spending habits by the younger generations over the course of the past several years, which I wrote about a year ago, have almost all stagnated over the past 12 months.
This includes sporting goods, gaming, travel and leisure and general entertainment. The personal technology space has performed the best of them all, but it too is showing signs of exhaustion.
The recent subscriber miss and resulting negative correction in Netflix (NFLX) is in keeping with that trend and may be a harbinger of what is coming for the rest of them as consumers shift their attitudes to be back in line with traditional norms again.