An interesting piece of news came out of San Francisco earlier this year about a shortage of moving vans in the Bay Area. It was so bad that the cost of a one-way U-Haul from San Francisco to Las Vegas was $2,000, while renting the same vehicle in the opposite direction cost only $100. Apparently, a sizable group of people were taking a one-way ticket out of town.
While economists and researchers are always looking at data to understand trends, this piece of news seemed odd given San Francisco’s booming economy. Not only are jobs abundant, but they come with perks never dreamed of including free food, dry cleaning services and ping pong tables. What on earth is happening in the Bay Area and the California Dream?
Millennials appear to be fleeing the city. The Bay Area Council released data from early 2018 showing that 52% of Millennials plan on leaving the Bay Area. Of those, 62% would leave California. The primary reason was the inability to buy a home in a city where the median home price is $1.6 million. Further, the California Association of Realtors says people need an average household income of $333,720 to achieve homeownership in San Francisco.
And it isn’t just San Francisco. New York City is also seeing a shift with Millennials contemplating moves. Those leaving the Bay Area are eyeing Utah, Colorado, Oregon, Nevada and Texas where an affordable lifestyle is still possible.
While this decision might negatively impact San Francisco’s economy in terms of personal wealth building, Millennials might prove to a very practical money generation. Leaving expensive areas for more affordable destinations is an initial, major step towards wealth building – and it’s a generational shift. Gen X entered their 30s with the goal of owning a home, regardless of the cost. So have Millennials learned from the mistakes of Gen X?
The Friends Apartment that Impacted a Generation
In examining the difference between Gen X and Millennial attitudes towards housing, you don’t have to look any further than the influences of the top television shows when each group was in their 20s.
In the early 1990s, as Gen X started to reach adulthood, Friends became one of the top-rated shows on television. It celebrated twentysomethings’ friendships, and the backdrop of the deluxe West Village apartment seems to have had a significant impact on Gen Xers. Such prime real estate (probably $8,500 per month in today’s dollars) didn’t seem possible for two women with typical twentysomething salaries. Yet disbelief was to be suspended with the claim that it was rent controlled.
Fast forward 20 years. When asked their biggest financial regret, Gen Xers put stretching for a home at the top of list. After Friends went off the air, the US entered an era of historically low interest rates with home equity lines of credit (HELOCs) being easily accessible. Gen Xers embraced the opportunity for these cheap loans so enthusiastically that the Transamerica Center for Retirement Studies found Gen X to have the highest level of debt among all generations. Further, when Met Life released their major study of Gen X, research showed that among the 82% of Gen Xers who were homeowners, 2 in 10 were upside down in their homes.
“I regret not being more aggressive about finding a less-expensive home in the school district we were interested in,” said Stuart Ritter, age 52, of Owings Mills, Maryland. “The one we have is great, but we could have found one only slightly less great for significantly less money if we’d pushed a little harder.”
Amanda Ponzar, 41, of Alexandria, Virginia agrees. “We got initially caught up in the ‘keeping up with the Joneses,’ wanting bigger and better houses every time we moved.” Ponzar found that buying bigger houses meant “having a large mortgage that could become an albatross around your neck, tying you down and making it harder if you needed to move for a new opportunity, personal or family reason.”
For many Gen Xers, the real estate decisions they made have hurt them in the long run. The Friends lifestyle had come at an exorbitant cost.
Girls, Walk-Up Apartments and Realism
In comparison, the seminal Millennial television show Girls was far less glamorous and showed more of the gritty reality of twentysomething life in the big city. Walk-up apartments, irritating roommates and small spaces was a more accurate reflection of what twentysomething life would be. And even though they were in trendy Brooklyn, the apartments shown were anything but.
When watching Girls, older generations couldn’t help but feel glad they were no longer in their twenties in light of the financial struggles and crappy apartments – quite different from watching Friends.
As they start to escape expensive areas, Millennials appear to be doing it on their terms. From a financial perspective, they have embraced retirement savings much earlier than Gen Xers and are focused on learning more about wealth than previous generations. Further, Millennials have the benefit of watching Gen X struggle with housing in the 2008 Economic Crisis with short sales and foreclosures.
To fully avoid the Gen X pitfalls however, Millennials have to do more than move to affordable cities. The next step requires them to not buy more house than they can truly afford. They need to sacrifice to fully max out their 401ks, 529s and Health Savings Accounts. And they need to strategize on how to live without taking on more debt.
In the Girls finale, Hannah Horvath eschews the city life to move to the suburbs to give her newborn son a better life. We will never know if she succeeds or not, but for the Millennials taking the one-way U-Hauls out of town, here’s hoping that this pragmatic step propels them towards real wealth and an affordable lifestyle.