Remember back in 1969 when you were listening to Sly and the Family Stone belt out the refrain, “I'm going take you higher” on the radio? Though the song may belong to the baby boom generation, the lyric could just as easily become the mantra of Generations X and Y. You can count on them to take the housing industry higher.

Don't believe much of what you have heard about Generations X and Y. They are not disillusioned generations cut off from the economic mainstream and shut out of the labor market. The reality is that they are savvier and better educated than the baby boomers and on distinctly higher income and wealth trajectories.

Yes, they may be deeper in debt, and yes, they may be faster to change jobs than their elders. But they are also more willing to take on mortgage debt and have benefited from the strong economy of the 1990s and more liberal mortgage underwriting of the past 10 years. Although they may strain to make their mortgage payments, they are building heaps of home equity in the process.

And no, Generation X—also often called the baby bust generation—is not the diminutive generation once feared. Thanks to heavy rates of immigration, this Gen X is only about two million households shy of the size of the trailing edge of the baby boom. What it lacks in size, it makes up in economic clout.

SWEET SMELL OF SUCCESS Make no mistake: these two generations—even if you define them very narrowly as just the groups that share the birth years 1965–1974 (Generation X) and 1975–1984 (Generation Y)—are a force to be welcomed, understood, and reckoned with. Consider the following facts:

  • Now in their 20s, Generation Y is even larger (at 14.9 million households) than the trailing edge of the baby boom was in their 20s. Now in their 30s, Generation X is only 1.8 million households smaller than the 23 million trailing edge baby boomer households were at the same ages.
  • Thanks to higher homeownership rates, despite its smaller size, Generation X has nearly as many homeowners (13.2 million) as the trailing boomers (13.3 million) had when they were in their 30s.
  • Generation Y reached their 20s right in the middle of the recent homeownership boom. As a result, they have sharply higher homeownership rates in their 20s than either the trailing boomers or Generation X at the same ages.
  • These two generations are driving forces in the housing market. Indeed, Generation X constituted 33 percent of all new home buyers in 2002–2003 and Generation Y for 13 percent. As Generation Y reaches their 30s over the next 10 years, they will likely account for even more than one-third of new home buyers.
  • They are big spenders on remodeling, too. In their 30s, for example, Generation X is spending $400 more per household than the $1,800 spent on average by the trailing boomers when they were in their 30s a decade ago.
  • So rid yourself of the mistaken view that Generation X and Y are not at least as prosperous as their parents were as young adults. Contrary to the notion that they are falling behind economically, they are way ahead—although in many cases it is taking two incomes to achieve these gains; whereas, 20 or 30 years ago, one income might have been enough. Seven percent of Generation Y households currently have incomes of $100,000 or more in inflation-adjusted dollars compared with 4 percent of Generation X households and 3 percent of trailing boomers when they were the same age. Today, 17 percent of Generation X households have incomes that were as high as 12 percent of trailing boomers when both groups were in their 30s.

    Belsky is executive director, Joint Center for Housing Studies at Harvard University.