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48 HIGH NEGATIVE EQUITY AMONG GEN-XERS CAUSING HOUSING GRIDLOCK Much has been said, and even more theorized, about why millennials are not buying homes at the same rate their generational predecessors bought when they were new- generation homebuyers themselves. Zillow, however, may have found a real answer in the fact that generation X and baby boomers are largely underwater. According to Zillow's latest Negative Equity Report, high negative equity among Gen-X homeowners is causing gridlock in the U.S. housing market. Nearly 43 percent of homeowners between 35 and 49 are underwater on their mortgages. In contrast, only 15 percent of millennial homeowners (those between 20 and 34 years old) and 31 percent of baby boomers (50 to 64 years old) are underwater. is storehouse of negative equity among the two older generations limits millennials from homeownership, mainly because of the ripple effect created when underwater homeowners have trouble listing their properties for sale: baby boomers may not be able to find move-up buyers for their homes because Gen-Xers are stuck with troubled mortgages, Zillow reports. In turn, millennials can't move into the more affordable starter homes currently occupied by Gen Xers. In other words, the very types of houses young first-time buyers would be most able to afford are not hitting the market, and millennials are increasingly getting priced out. Zillow found that among all homes with a mortgage nationwide, 28 percent that are valued within the bottom third of home values were underwater in the second quarter. is compares to about 16 percent of homes in the middle tier and 9 percent in the top tier. All ages combined, more than a third of homeowners with a mortgage are effectively underwater and unable to sell their homes for enough profit to comfortably meet expenses related to selling and afford a down payment on a new home, the report states. Zillow's chief economist, Stan Humphries, says the recession is largely to blame, having most crippled the homes the majority of Gen-X bought. "On the surface, the housing recession did not overtly impact millennials' housing wealth to the degree it did generation X and the baby boomers," Humphries said. "Most millennials were likely too young to have purchased a home during the bubble years. 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, Humphries says. is leads to increased competition for homes and the frank reality that many millennials are simply too young and too new to the workforce to have saved up significant money to compete with more established older buyers. "e reality is, negative equity is part of the new normal," Humphries said. "Finding creative solutions to keep homes affordable, available, and accessible to [millennials] will be critical going forward." CONSUMER SENTIMENT ON REBOUND After a poor reading earlier in the month, consumer sentiment in August recovered more than expected, despite concerns about the economy's future direction. e University of Michigan/omson Reuters Index of Consumer Sentiment climbed to 82.5 in the final August reading, slightly better than July's final value of 81.8, but a sharp upturn from a mid-month reading of 79.2. For nine months now, the index has remained largely unchanged, moving in a range between 80 and 82.5. "e stability in consumer expectations during the past nine months has helped to insulate the economy from much larger swings in business investments," said Richard Curtin, director of the monthly sentiment survey. "At the same time, the problem is that confidence has been unable to rise above those modestly positive levels. is reflects the ability of the Fed to raise asset prices, which has primarily benefitted upper-income households, and their inability to prompt wage increases, which has prevented the re-establishment of a more broadly based optimism." Indeed, 59 percent of households with incomes in the top tier reported being better off now than they were before, while only 36 percent of those in the lower tiers said the same. At the same time, 34 percent of the top-income households reported net income gains, while there were no net gains reported in the bottom two-thirds. "To be sure, all households have benefited from the resurgent economy," Surveys of Consumers said in its report, adding that the data point to a 2.5-percent increase in consumer spending in the year ahead. e index component measuring consumer feelings about current conditions rose 4.8 percent over the month to 99.8, its highest since July 2007. Meanwhile, the expectations component of the index dropped 3.3 percent to 71.3.

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