GEN X HOMES IN

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Once upon a time, owning property was a privilege reserved for nobility. You came by it the old-fashioned way: You conquered it or you inherited it. Today, acquiring a home is a somewhat more mundane affair. But for most Americans, the transition from being a renter to becoming a homeowner is still considered an important rite of passage.

For the nation's 44 million Generation Xers, this transition is happening at a furious pace. Now aged 23 to 34, "Generation Xers are starting out on higher trajectory rate for homeownership than even the boomers did in the 1960s," says Eric Belsky, executive director of the Joint Center for Housing Studies (JCHS) at Harvard University, which recently released its annual report, "The State of the Nation's Housing."

In 1998, the homeownership rate among unmarried Gen X households, for example, was 23.2 percent, according to the Census Bureau. The rates of their boomer counterparts, on the other hand, have never hit higher than 21.4 percent. This is significant, because the Generation X cohort is smaller than the boomers, who dominated the first-time homeowner market for 30 years, and their new-household formation rate is projected to fall over the next ten years. So the heat is on to better understand their homesteading proclivities.

Although the homeownership rates for all age groups have increased over the last few years because of a strong economy, the increase for Gen Xers has been particularly dramatic, says Nancy McArdle, a research analyst with the JCHS. "When interest rates spiked up into double digits during the 1980s, we saw homeownership rates plunge dramatically for the younger age groups," she says. Historically, it's not unusual for older age groups' homeownership rates to recover after a bad economic period, she says. But rates for younger people are usually slow to rebound. This has not been the case for Gen X. More than half of all Xers age 30 to 31 and 36 percent of those 25 to 29 already own their own homes.

Behind the comeback is a slow but steady rise in income: The economy is treating Gen Xers pretty well right now. Although incomes among Gen X householders have shown an overall decrease of 0.7 percent from 1989 to 1997, according to the Census Bureau, in recent years the trend has reversed. Between 1996 and 1997, their real incomes increased by 4 percent, and with that gain came a significant bump in homeownership rates.

The high participation of Gen X women in the workforce is also fueling the home-buying market. More than three-quarters of women ages 25 to 34 are in the labor force today, versus just 36 percent of this age group in 1960. Dual incomes have allowed married Gen Xers to get into the homeownership game earlier.

And some Xers have another source of income: Mom and Dad. "Gen Xers have baby boomer parents," says Belsky. "There's wealth transfers going on. Xers have access to funds that aren't entirely their own."

Home builders are already starting to see the results of Xers feeling flush. "They're coming right out of school and buying homes," says Jeff Charney, former senior vice president of marketing communications at Kaufman and Broad, the nation's largest homebuilder, which sells more than half of its homes to first-time homeowners. Kaufman and Broad has dubbed these upwardly mobile Gen Xers "baby zoomers," many of whom are residents of Silicon Valley. Charney says that zoomers are willing to gamble that their incomes will increase. "They're not saving for that rainy day. They don't see a rainy day in sight, especially in high-technology areas," Charney says.

Of course, not every Xer is a zoomer, and for many, finances are still the center of the home-purchase decision. Money played a large part in the house hunt that Scott Caliel, 30, and his wife Kate, 27, just completed. They're building a four-bedroom house in Henrietta, New York. Caliel says that there were compromises that they had to make because of cost. They did not pick the area with the top schools, for example, because "the taxes were outrageous," he says. But they could afford $15,000 more house in the area they settled on.

Money is also a concern for Carrie Bernstein, 24, a graduate student living in a studio apartment in San Francisco with her fiance, Matthew Lewis, 31, who owns the apartment. "We are actually trying to find a bigger place now, one that will be closer to University of California at San Francisco, so I won't have to commute," Bernstein says. "But housing prices are very high, so we may end up staying here until next year, or looking for a bigger place in this area."

Money is certainly a large factor in the home-buying decision. But increased incomes don't completely explain the rebound in homeownership rates for Gen Xers. In fact, the rebound is counterintuitive, says McArdle of Harvard, because households with married couples are still the most likely to own homes, and only 52 percent of Gen X householders are married.

But marriage is not a prerequisite to homeownership for Gen X. Some 18.4 percent of single female householders age 25 to 29 own their own homes, according to the Census Bureau - a jump of 4 full percentage points over the last ten years. For single males in the same age group, the homeownership rate increased more than 6 percentage points, to 39.1 percent.

Businesses targeting these homebuyers have to be careful to avoid a subtle demographic trap. Xers are an extremely diverse generation - fully one-third are minorities. And the first-time homeownership rate for minorities overall has increased, as it has for Gen X. "In 1993, minorities made up 22 percent of all first-time buyers," says McArdle. "Just four years later, they made up 30 percent of first-time buyers." But minority Gen X households don't follow the exact same home-buying patterns as non-Hispanic white households, says Peter Zorn, director of financial strategy and policy analysis at the Federal Home Loan Mortgage Corporation (Freddie Mac). "Hispanics and African Americans become homeowners later in life," he explains. This means one should be careful about broadly targeting first-time minority homebuyers with a heavy Gen X message, because many of them are older than their white counterparts.

Whites achieve their highest first-time ownership rates between the ages of 26 and 34, with an average rate of 16 percent, according to Zorn's calculations. But a single lifestage of high intensity home buying simply does not happen for Hispanics and blacks, who never achieve double-digit rates of first-time ownership. Rather, they experience a slow and steady progression toward homeownership, Zorn says. So while a majority of whites have owned a home at some point in their life by age 30, it is not until age 38 that a majority of Hispanics own a home, and not until after age 44 that blacks do.

There are a number of reasons for this. First, there are real financial barriers that push back the age of homeownership for minorities. White Gen Xers have a median income of $40,477 - substantially more than the median income for Hispanic Gen Xers - $27,519. The black Gen-X median income is even lower - $26,148, according to the Census Bureau.

But it's not just a matter of economics. "Among African Americans and Hispanics, there's less of a housing ladder," Zorn says. Whites are more likely to "trade up" in homes than their minority counterparts, he notes. "The thought process is more like, `This is my first home. It may be too small, but in a few years I'll sell it and move to a better neighborhood,'" he says. "Among minorities, the presumption is they're going to live in the home forever." This adds to their perception of risk in buying a home, Zorn says.

Hispanics can also have difficulty finding a house that they'd like to buy, says Isabel Valdes, president of the Cultural Access Group, a multicultural marketing and research consultancy. She says it took her some time to find a home that met her requirements in floor plan. For example, the current trend of having a kitchen that opens out onto a family room is repugnant to many Hispanics, Valdes says. "I'm still terrified that when I have my [non-Latino] friends in my home, everyone will come into the kitchen," she laughs. "It's not so well received in Latino culture, that strangers come into the kitchen to help cook. It's embarrassing," she explains.

Valdes adds that many of the attempts that she has seen to meet the cultural needs of Hispanics have been clumsily executed. "They go for something that is too stereotypical - very bright Mexican tiles, the burro-and-sombrero look," she says. "This is like someone telling you that since you're American, you want a cowboy in your living room, standing there." The market is wide open, she says, for appropriate catering to cultural tastes. Recent immigrants experience additional psychological barriers to h omeownership and present additional challenges for lenders and others trying to understand the minority home buyer. For their first decade in the United States, immigrant homeownership rates are low. "It's not that they [don't] have the money," says Valdes. It's a nostalgia factor: Ten years is the approximate length of time it takes many immigrants to realize that they won't be going back to their native country. "It's the same in Miami, New York, Los Angeles," Valdes observes.

But after that first decade, there's a "substantial movement into homeownership,'" says Harvard's McArdle. Eventually, foreign-born immigrants who become citizens have a homeownership rate that is not too far below that of native-born citizens.

To make matters more complicated, homeownership rates among second-generation households under 30 (that is, native-born children of immigrants), are much higher than those of immigrants under 30. Instead, the rates are close to those of their American peers, according to the JCHS study, in part because they share similar median income and education attainment levels. So while today's second-generation households under 30 comprise a small share of the homeowner market, nearly one-sixth of the much larger echo boom population is comprised of second-generation Americans, making them a group to watch in the millennium, the JCHS study notes.

Whatever their race or ethnic group, Gen Xers in the home-buying market are making many demands on the housing industry. "They're used to having a Starbucks on every corner," says Charney of Kaufman and Broad. "Think about coffee, and how many different ways they can have that," he says. "They're used to having it their way, and they want the same thing in their home." After extensive surveys, Charney says that Kaufman and Broad decided that their best strategy to attract Gen Xers was to present them with a wide assortment of options.

"Builders used to be about ego. We put in what we thought [people] needed versus what they really wanted," says Charney.

No more. At Kaufman and Broad showrooms, which Charney describes as a cross between the Gap and Home Depot, home buyers are presented with thousands of options to choose from - including designs for garage doors, fireplaces, kitchen countertops, tile, carpeting, and lightning fixtures. And design consultants are available "so you don't make a hideous mistake," Charney says.

"You can see everything, walk through and choose. It's the same kind of experience as IKEA, but more upscale, like Pottery Barn," he says, throwing in another retail reference. It's not an accident. This home-building company believes that the retail environment plays well with Gen X. It has a blunt, "Hey, we're trying to sell a home, you're trying to buy a home" honesty that's appealing, Charney says. "The hip factor is important to them."

Still, says Marcello Luzi, the president of Weixler, Peterson, Luzi, a Philadelphia-based interior design firm, Gen Xers aren't making their housing choices to impress their friends. A recent study by the American Society of Interior Designers revealed that early lifestage homeowners who had tackled at least one renovation project in the last year were less likely than older homeowners to say that the appearance of their house was extremely important to them. "Generation X is all about `me, me, me, me,'" Luzi says. "They're doing it for themselves. They're not doing it for the Joneses."

Remember, 46 percent of Gen Xers write the landlord a rent check every month, according to Mediamark Research. And they're not all homeowner wannabes. "A lot of Gen Xers are becoming renters by choice," observes Michael Medick, an architect and the director of town and community planning with Looney Ricks Kiss in Princeton, New Jersey. "The multifamily renter market is becoming really strong, and a lot of people are looking at renting truly as an option. They're looking at it as a choice they're making, rather than a financial issue," he says.

"Gen X folks are working hard, things are busy these days, and they're putting in longer hours," Medick says. "They're cherishing free time, and they don't want to be strapped to a home, with all the maintenance issues. They're not looking for the yard to cut on the weekend," he says.

Still, the increase in homeownership rates for Gen Xers continues, in part because banks are bending over backward to help them overcome what has always been the largest obstacle to homeownership: scraping up enough cash up front. The paychecks that come in every week may be healthy enough to support a mortgage payment, but "the biggest obstacle is lack of wealth accumulation for down payment and closing costs," says Steve O'Connor, senior director of residential finance at Mortgage Bankers Association of America.

This has been an ongoing puzzle for the loan community, says O'Connor, because many potential home buyers in this age group are good credit risks. The lending community has launched several products in the last few years to make it easier for young adults to scale the wall to homeownership. These programs generally involve putting less than the traditional 20 percent down, or they open pathways to different sources of loan money. Lenders are also trying to reach Xers through an obvious medium - the Internet. "Young people go to Amazon.com to buy books and CDs," says O'Connor. "Why not go online and get a mortgage?"

There are also cultural walls to break down in the lending experience. In focus groups run by Freddie Mac, Hispanics, for example, said that debt was undesirable, especially for such a long period of time. "It is not a very good feeling to owe something," said one Hispanic homeowner. "I went through college without getting a loan...It's hard to say that I will have to pay 20 to 30 years before I can say it's mine," a renter commented.

Homeownership is usually for a very long time. It's an intensely complicated and emotional process. But understanding Gen X homesteaders can yield even bigger results down the road. Thanks to their strong homeownership rates, Gen Xers will be younger than previous generations when they start to trade up into bigger and better houses. Belsky says that homeowning Gen Xers are in a good position for lifelong financial success because they've bought homes at such an impressive rate. "They've gotten off to the right start, and where they start has a lot to do with where they end up."

And the large population of Gen Y first-time homebuyers is following hard on Gen X's heels. "A lot of the trends that affect Gen Xers affect the leading edge of the echo boom as well," McCardle notes. The opportunities that Gen X creates for the housing industry will not end as they leave their age of transition behind.

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