Amid the much-publicized wealth of the nation's emerging young professional class, the majority of the 1950s baby boom generation is confronting a hard reality: They are dramatically worse off than people their age were 20 years ago and are falling steadily farther behind.
Two-thirds of this second, and biggest, wave of the post-World War II baby boom earn less than their predecessors who matured in the 1960s. The affluent lifestyle of the "yuppies" or "yumpies" remains well beyond their grasp; they cannot buy houses without help. And for the lowest one-third, homeownership is a distant dream they cannot hope to realize; even employment often seems in the same category, said George Sternlieb, director of the Rutgers Center for Urban Policy Research.
The people born between 1950 and 1964 are often described by economists and demographers as the second wave of the baby boom because their numbers rose dramatically from those born in the first boom of the late 1940s. More than 4 million babies were born each year between 1954 and 1964, with the peak of 4.3 million coming in 1957, compared with the 3.6 million born in 1948 and 1949.
The members of the first wave are prospering, but the later and more numerous arrivals, particularly those now aged 25 to 34, are facing the greatest economic difficulty. Most of them cannot expect to afford the kinds of homes their parents, and even their predecessors in the baby boom, were able to buy, say housing economists.
Lower-paying jobs, a result of fierce competition, combined with higher prices and higher interest rates have sharply limited their purchasing power. The big boom in housing demand the industry had looked forward to when this group reached the home-buying age is now expected to fizzle.
Yuppies, the young, upwardly mobile professionals who have received most of the attention as they moved up the economic ladder, "can afford most of the good things in life, especially if they have two incomes," Sternlieb said. But they make up only a third of the second-wave baby boom.
"At the other end, those who don't have the high-tech or high-service jobs are left out of the picture," he said. The lowest third, with a "substantial" number of minorities in their ranks, "are in trouble," he added, while the middle one-third "need help," especially if they want to buy homes.
"Because there are so many of the 25- to 34-year-old group , their bargaining position in the labor market is weak. They are getting paid relatively less than members of less abundant generations," said Michael Carliner, senior housing economist for Chase Econometrics.
For example, he said, in 1970 "I got $15,000 a year. Now when I hire people with similar experience they get $21,000 or $22,000. But, with inflation taken into account, it should be $35,000. So they are getting 40 percent less."
The incomes of families in this age group have dropped steadily, with only a couple of reversals, since 1960 when compared with all family households. From the highest peak in 1965, when the 25-to-34 age group had incomes slightly more than 96 percent of those of all families, the percentage dropped to just over 86 percent in 1983, according to Carliner. The increase in single-parent households in recent years may overstate the income drop, "but on the other hand there was an increase in two-earner households," he said.
Census Bureau figures show a decline in actual earnings among the family households in this baby boom cohort over the last five years when converted to constant dollars. From $26,568 annually in 1979, income dropped to $22,776 in 1983, said Charles Nelson, a bureau survey statistician. The yearly incomes are converted to 1983 dollars.
While the second wave's earnings have lagged, the amount of income needed for down payments on homes and to qualify for mortgages has jumped. Loans with low down payments are rare, with 20 percent of the cost of the house being the standard, said Sternlieb.
And since 1978 the income needed to qualify for a home loan has outstripped the median income of the population as a whole, with the widest gap occurring in the two years ending in mid-1982, according to the National Association of Realtors. The distance between the median and qualifying incomes has narrowed considerably since then, but began to increase again in April. In July, the last month for which figures are available, the income required to qualify for a mortgage was $5,202 higher than the median income, up from $3,634 in April, the NAR reported.
Facing these kinds of odds, many would-be home buyers in the lower two-thirds of the second-wave group "must depend on someone else, and on 'GI' financing," which Sternlieb said meant "good in-laws."
A real estate broker in the Washington area agreed with Sternlieb's assessment. James M. Merrion, head of Coldwell Banker residential sales in the Washington area, said his sales agents report that parents often put up some of the cash to help young, first-time home buyers.
Although the housing market will not be closed to all second-wave baby boom families in the lower two-thirds of their cohort, they will have to work harder and wait longer.
"They will have to devote a relatively greater portion of their incomes to housing . . . and may have to downgrade their aspirations," Carliner said. "They may not achieve homeownership until they are older," and many will remain renters."
Economist Kenneth T. Rosen said the second wave is "facing a crunch of high interest rates relative to inflation, of 13 percent or 14 percent compared to 5 percent or 4 percent. What this does is raise monthly payments dramatically without raising income dramatically."
"These people were born five years too late to get the maximum income and the maximum house for their money. The first wave pushed up all the prices and took the jobs," added Rosen, who is chairman of the Center for Real Estate and Urban Economics at the University of California, Berkeley.
When the first-wave babies, born in 1948 and 1949, reached the age of 30, houses cost half as much as they do now, and mortgage interest rates were 40 percent lower, Sternlieb said.
A consequence of the higher housing costs and lower incomes has been a sharp drop in homeownership among young families, said Carliner. Statistics reported recently by his firm showed a drop in ownership by married couples in the 25- to 34-year age bracket from 66.8 percent in 1979 to 60.9 percent in 1983. Declines, although not as large, also occurred in homeownership by households headed by single men and women.
Also discouraging to young, prospective buyers is a decline in the rate of home appreciation and reduction in the value of deductability of interest and taxes, Carliner said.
An increase in two-income families helped forestall an even greater drop in homeownership, and has become a dominant pattern of the baby boom generation, say economists.
Two incomes frequently are required to maintain the good life the Yuppies enjoy. For lower-earning families, two jobs may be needed to provide some luxuries or, in some cases, to keep afloat. Probably because of the increasing number of women holding jobs, the birth rate is dropping, said Leon Bouvier, a demographer with the Population Reference Bureau in Washington. Mothers are having "one to two children at most." The number of births is growing, because of the large number of women in the baby boom generation, but the increase is not as great as generally expected, he added.
As families leave the ranks of homeowners and turn to rentals, they find they must pay a larger proportion of their income in rent, as much as 35 percent or more in some areas, than tenants in the past. The average for the nation is "just shy of 30 percent," up from the 25 percent in the recent past, Sternlieb said.
In another development that does not bode well for the housing industry, the number of households being formed is shrinking for the first time since World War II, he said. Young people stay home longer, or live in houses shared by a group of people.
"For the first time, many people with new jobs" cannot afford to set up their own households. And, for the same reason, "there are now more unhappy marriages and fewer divorces."
The economic outlook for most second-wave baby boomers means "that people are going to have to adjust their expectations downward" when they buy homes, said Rosen. "They are going to have to buy somewhat smaller houses, less land, fewer amenities. They won't get the house their parents had, but they may get a higher-quality unit."