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By Brian Honea

Tim Rood, Chairman of Washington, D.C.-based business advisory firm The Collingwood Group, recently discussed the “housing sales roller coaster” and the challenges the country will face if millennials do not enter the housing market, according to a post Wednesday on the Voice of Housing, The Collingwood Group’s blog.

Rood, whose two decades of mortgage industry experience include serving as of Senior Director and Principal of Fannie Mae’s eBusiness Division, told radio host Jim Bohannon that the recent surge in apartment construction was largely due to developers taking advantage of millennials who have aspirations of homeownership, but cannot afford it but want to get out of their parents’ houses.

What will eventually happen if millennials continue this trend and become addicted to the urban lifestyle, he said, is that a whole generation will be looking to downsize.

“You’ve got the boomers, for example, that are stuck in the suburbs and we always thought they would want to move south, go to retirement go play some golf, go fishing,” Rood said. “But it turns out they, too, want to move to these urban areas, which is creating more demand for those residences, those apartments, driving up rents, but who the heck is going to take up and sop up all the inventory in the suburbs if that plays out?”

Rood noted that a recent study found that only about 20 percent of seniors who are passing away have any kind of financial assets outside of their home equity – and that generation has been touted as the most prosperous in the country’s history.

“You know what are we going to do if we find the millennials priced out of the market or making lifestyle decisions that keep them out of the housing market never saving, never building up equity,” Rood said. “Sooner or later these folks are going to want to retire or have some sort of health issue and Uncle Sam’s going to foot the bill.”

When Bohannon asked Rood about causes of the housing crisis, Rood responded that deregulation, and not the Community Reinvestment Act as many have speculated, was the main cause of the meltdown.

“Washington in the late ’90s and early 2000s said, ‘You know what? There’s a lot of old rules that were applying to banks that we should strip away. We should just trust that Wall Street and the banks will act in their own self-interest and not do silly things like lend to people who can’t pay for their mortgages, because ultimately that will crater the system.’ It’s kind of like that scene in Animal House where Otter goes, ‘You messed up, you trusted us.’

Well, that’s exactly what happened. They just got away from themselves and trusted that values would always go up, and therefore it doesn’t matter whether somebody can pay because they will always have a way out.”

April showed an increase in new home sales but a decline in existing home sales, prompting Bohannon to ask Rood about the “housing sales roller coaster.” Rood said a lack of inventory was partly to blame for the flat existing home sales, but also the fact that millions of underwater homeowners do not have enough equity built up to cover the transaction costs of selling and then moving into another property, so they “feel kind of trapped and there just isn’t a lot of upward pressure from the demand side to make that change.”

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