Generation X was hurt more than the Baby Boomers or the Millennials by the housing bust because many Generation Xers lost their starter homes, and many others are still trapped in them.

The Baby Boomers lost their retirement savings.

The Millennials can’t afford to enter the housing market.

While both the Boomers and the Millennials were damaged by the housing bust, the generation most impacted was Generation X—my generation.

If circumstances were different, I might have participated in the housing mania. Most of my cohorts did because the housing mania corresponded to the period in the lifecycle of Generation X where they were most likely to become homeowners. They overpaid for the Baby Boomer’s houses, and since many Generation Xers are still underwater, they are trapped in their entry level homes, holding prices at nosebleed levels the Millennials can’t afford.

I argue that the Baby Boomers were the beneficiaries of 25 years off declining mortgage rates—at least the prudent Baby Boomers who didn’t heloc themselves into oblivion. (Do you like the use of the word “heloc” as a verb meaning to borrow irresponsibly? I do.)

And while Millennials are screwed by the policies to reflate the housing bubble, they still have mobility and the ability to make choices about housing. Generation X is stuck. They made their choices; many of them endured severe financial consequences, and many more endure life in a debtor’s prison—albeit a guilded cage.

In my opinion, it’s Generation X that was hurt most by the housing bust.

Ownership rates went from first to last, interrupting market’s direction

By Chris Kirkham, April 8, 2016

The group of Americans known as Generation X has suffered more than any other age cohort from the housing bust, according to an analysis of federal data, suggesting homeownership rates for that group could remain depressed for years to come.

Realistically, homeownership rates for Generation X will never recover. Most of these borrowers are now in their 40s, and many have bad credit. Perhaps they will buy a home in retirement, but for the rest of their working lives, most of them will likely rent due to either bad credit or a lack of a down payment.

The data show an enormous swing in the fortunes of people born between 1965 and 1984, the group defined by the Harvard Joint Center for Housing Studies as Generation X. Compared with previous generations, Generation X went from the most successful in terms of homeownership rates in 2004 to the least successful by 2015, according to the data, which date to the early 1980s.

The culprit: a historic bull market for housing, fueled in part by easy-to-get mortgages, that encouraged record levels of home buying until the financial system cracked and the housing market collapsed. Earlier generations such as baby boomers, who entered the market before the frenzy of the early 2000s, have fared better.

No kidding.

Generation X “came into the market at precisely the wrong time,” said Rick Sharga, executive vice president at Ten-X.com, an online real-estate brokerage. “We’ve effectively wiped out a group of homeowners who historically would have been on their second or third properties by now.”

I stated back in 2013 that the move up market would suffer for another decade due to the lack of equity in the generation most impacted by the housing bust. Since this will also slow homebuilding and home sales, the economy may also suffer for another decade.

But Generation X’s travails promise to disrupt traditional real-estate patterns as well. The housing market can be viewed as a progression through time: younger people start out renting, save enough to buy houses, build equity and then trade up to more desirable homes.Now that trajectory has been interrupted, with fewer middle-aged buyers trading up, which would open up the inventory of smaller homes for younger buyers.

“We need them to be buying houses and pushing the market,” said Dowell Myers, a professor of urban planning and demography at the University of Southern California. “But they’re not. They’re not moving. The whole system is gridlocked.”

Inventory will remain low as long as prices are below peak values that Generation Xers need to get out of their starter homes.

Xavier Texidor, 33 years old, and his wife have bought and lost two homes outside Jacksonville, Fla., since he was in his early 20s. … “Growing up, I heard a lot of people say how renting was a waste of money. I don’t see it that way anymore,” he said. …

Throwing money away on rent doesn’t seem quite so foolish, especially when huge maintenance charges accrued (through companies like the heat pump repair in Hendersonville, TN) is taken care by the owners.

Many people who lost homes to foreclosures or short sales face long waits before lenders will consider them again—up to seven years for foreclosures and up to three years for a short sale. A study last year by the National Association of Realtors estimated that about a third of the 9 million buyers who went through distressed sales or foreclosures between 2006 and 2014 will never return to homeownership.

Far more than one-third will stay away. I recently wrote about the The epic fail of boomerang homebuyers. Like the garbage from the NAr, most estimates from supposed experts claimed anywhere between 50% and 80% of former owners would return to the market. The reality is closer to 10%.

But while many Generation X rental dwellers were forced to the sidelines, some have simply opted out. Tim Mustard, 49, is among those who believe renting is the best choice. He and his wife bought a home in Irvine, Calif., in 2003. As home values escalated through the mid-2000s, the couple refinanced their mortgage twice and took out a home-equity loan.

I documented hundreds of personal Ponzi schemes from 2007 to 2011. I could have kept going, but after four years, I made my point. I wonder if I every profiled his property back in the day?

As they considered a third refinance in 2008 they consulted with two friends—a mortgage broker and an accountant—who advised them to sell instead and get out before the market hit bottom. They did so, taking a small loss. Now Mr. Mustard, an architect, is on track financially, but he prefers to rent. They live in a good school district for their two children, and he is only 8 miles away from his job. The thought of buying lacks appeal. “The last recession was so devastating,” he said. “There’s still a little bit of fear in me.”

As there should be. Hopefully, if he does decide to buy again, he won’t resort to Ponzi financing to live the good life.

Daniel Danyus, 34, is making the transition back. He and his wife lost three properties to short sales after getting in over their heads during the boom. … “I’ve definitely learned some things through this process,” Mr. Danyus said. “This wasn’t something that just happened to me. It was something we experienced as a culture.”

Yes, we did.

While I still enjoy writing about housing issues, writing during the mania was more entertaining. Back then there was much disagreement about what was going to happen, and the deluded fools who participated in the mania often ranted with amusing emotionalism. Many of us watched the madness voyeuristically. When you see the evidence of someone borrowing and spending $500,000 or more and losing their house, you can’t help wonder what they were thinking—and you want to read more.

At this point, I feel it’s a valuable public service to keep the lessons of the housing mania and bust in focus so the next generation doesn’t make the same mistakes as Generation X and endure the financial hardships associated with participation in a financial mania.

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