40% of school districts nationwide have cited foreclosure as the primary reason for increased homelessness among students, according to a study by the First Focus organization and the National Association for the Education of Homeless Children and Youth. Research indicates the current foreclosure crisis is the largest forced relocation since the Great Depression, and is taking a negative toll on children.

In May 2008, First Focus estimated that two million children would be forced out of their homes due to foreclosure by 2010. The estimate was conservative since it focused on subprime loans and therefore did not include families who defaulted on prime loans, or those evicted from foreclosed rental units.

first tuesday take: The growing population of displaced children will mature into cynical adults cautious about becoming homeowners. With the real estate bubble officially popped and Generation Y twenty-somethings coming into homebuying age, the collective youth who were affected by foreclosure during their childhoods are developing a mindset much earlier in their lives that will deter them from viewing a home as an investment, much less a tax savings or socially required condition for proper shelter. [For more information regarding Generation Y homebuyers, see the October 2010 first tuesday article, The demographics forging California’s real estate market: a study of forthcoming trends and opportunities Part I and Part II.]

While the majority of Gen Y may still want to own a home, their childhood foreclosure experiences will reinforce the notion that economists have gleaned from history: a home is less of a luxury and more of a necessity, causing home prices to rise long term with the rate of consumer inflation – such as occurred following the Great Depression and WWII. [For more information regarding the economic history of housing, see the October 2010 first tuesday article, Is housing a luxury or necessity? ; for more information regarding Generation Y homebuyers, see the November 2010 first tuesday article, Generation Y is still chasing their dream of homeownership.]

With tenancy looking like a more realistic alternative for the jobless, traumatized youth, our prediction that renting will become more popular than buying in the near future is garnering strength, especially in California as we head straight downward to less than 50% homeownership throughout the state. [For more information regarding rental predictions, see the July 2010 first tuesday article, Rentals: The future of Real Estate in CA?]

Re: “Foreclosure takes toll on increasing number of children” from the Washington Post