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Generation X housing woes impact entire mortgage market

Baby boomers can’t sell, millennials can’t buy

Generation X, people 35 to 49, got hit the hardest by the financial crisis and as a negative side effect are now prohibiting the rest of the market from making any progress.

Generation X homeowners are far more likely to be underwater on their mortgage than millennial and baby boomer homeowners, according to the second quarter Zillow Negative Equity Report.

As a whole, the national negative equity rate dropped to 17% in the second quarter, with more than 8.7 million homeowners with a mortgage owing more than their home was worth. This is expected to continue to drop, falling to 14.9% by the second quarter of 2015.

“On the surface, the housing recession did not overtly impact millennials’ housing wealth to the degree it did generation X and the baby boomers, as most millennials were likely too young to have purchased a home during the bubble years,” said Zillow Chief Economist Stan Humphries.

“But as this huge generation begins to consider buying homes, they’re entering a market still very much in recovery and far from anyone’s definition of normal. Because so many homes are stuck in negative equity or are effectively underwater, the inventory of homes for sale is severely constrained, leading to more competition for those that are available,” he continued.

To put it in perspective, approximately 18.7% of generation X homeowners are underwater on their mortgage, compared to 19.6% of millennial homeowners (20-34 years old) and 10.9% of baby boomers (50-64 years old).

A recent report from TransUnion found that the youngest group of mortgage borrowers posted the lowest mortgage delinquency rate, falling to 2.34% at the end of the second quarter.

However, millennials are estimated to start buying houses soon, a report from the Joint Center for Housing Studies of Harvard University said.

The fed hopes that the housing market recovery would accelerate once employment growth revived and younger adults were able to get jobs.

But until that happens, the least expensive homes that millennials are more likely to buy are mostly underwater. Among all homes with a mortgage, 28.2% valued within the bottom third of home values were underwater in the second quarter, compared to 15.8% of homes in the middle tier and 9.2% in the top tier.

And then Baby Boomers who are trying to move out are also stuck since they are unable to find move up buyers for their homes.

“The reality is, negative equity is part of the new normal, and finding creative solutions to keeping homes affordable, available and accessible to this generation will be critical going forward,” Humphries said. 

[CORRECTION: The story was updated Aug. 26 to reflect updated data from Zillow. The new story includes the correct data on the percentage of homes underwater per generation]

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