The Sword Dangling Over Gen Xers

70% More Debt Than Carried By Their Parents

Eventually, someone's going to have to start talking about how Generation X is supposed to pay for the homes it purchased in the past few years, let alone how it's supposed to pay for retirement. Regardless of whether you're a bubble believer, or not, few can argue about the poor prognosis for Social Security, or how lax Americans have been (and continue to be) about saving money.

If the leveling off of housing prices remains relatively level, as some of the most optimistic analysts expect it to do for several years, isn't there still a significant possibility of financial disaster ahead for Gen X?

Consider the comments about Generation X that appeared in a recent story by MarketWatch:

Generation X, typically defined as those born between 1965 and 1979, comprise a little more than half of the market for newly constructed homes, said James Chung, president of Reach Advisors, a Boston-based marketing strategy and research firm.

But that doesn't mean the homes that lured baby boomers, born between 1946 and 1964, are meeting the needs of the 30-somethings shopping now.

"It's the trade-off generation. It's no longer sort of the live-large mindset," Chung said. "They're living under different economic realities than their predecessors. They carry 70% more debt than the baby boomers did at that point in their lives because of the cost of housing.... Almost all of that is housing debt."

Although the story focuses on the issue from a marketing perspective, reading it made me wonder what options will be available to the young homebuyers who took on monster housing debt only because they believed they'd be able to use fast equity as an escape hatch from the impossible terms of exotic mortgage products. When that equity doesn't materialize and the loan terms slam down like a hammer, there's a good chance the pain will be felt by far more than just those who took the risk.

The issue was hinted at in the MarketWatch piece, but primarily in reference to flippers. The following excerpt quotes Ron Terwilliger, CEO of home builder Trammell Crow Residential:

"The reason this cycle went up so high and flattened so quickly is more speculative buying than I've seen in my 35 years in the business," Terwilliger said. "It's unfortunate so many people bought intending to flip."

It will take time to regain equilibrium, he said. "There's a lot of pain going on in the investment community."

-- TJ Sullivan in LA