...real estate/housing depends on bank-issued debt (mortgages) and the belief that a lifetime of paying a mortgage will magically result in financial security, based on the greater fool notion that someone in the future will be willing to pay more for an asset that hasn't changed either qualitatively or quantitatively (other than needing more maintenance as it ages).
...if Gen-Y cannot afford to buy Boomers' houses at bubble-level prices, then what will keep housing prices at these elevated levels?
Without strong demand for housing at sky-high prices, valuations will drop to whatever level demand can support. That level can be far lower than conventional housing analysts believe possible because they are still extrapolating Baby Boomer preferences and earnings into a future which will be quite different from the housing bubble decades.
...how much of the Boomers' housing wealth will trickle down to Gen-Y when they actually need housing, i.e. when they're starting families?
The answer may well be: very little. If Gen-Y is unwilling or unable to take on enormous mortgages to buy bubble-priced housing, we can project a housing market in which Boomers are unloading millions of primary homes as they seek to downsize/raise cash for retirement but there aren't enough Gen-Y buyers willing or able to buy these millions of homes at bubble valuations.
In this scenario, home prices must decline to align with Gen-Y's salaries (i.e. their ability to qualify for huge mortgages) and their willingness to shoulder bank-based debt.
If Gen-Y essentially opts out of the belief that financial security depends on buying a house with a large mortgage, then the U.S. housing market will have no sustainable foundation for price appreciation. Housing could easily decline by 50% in highly inflated markets.
...The funny thing about core values is that they are resistant to arguments such as "you should get a mortgage and invest all your money in Wall Street." Once people opt out of the fantasy that buying a house and entrusting one's capital with Wall Street leads to guaranteed financial security, no amount of cajoling or propaganda will change their values-based decisions.
...If the primary assets held by Boomers (houses and stocks) both decline for these fundamental reasons, there may be relatively little wealth left to pass on to Gen-Y. There is a peculiar irony in this: if Gen-Y avoids bank debt/mortgages, buying conspicuous consumption luxury goods on credit and investing in Wall Street's scams and skims, this generational lack of demand for housing, stocks and luxury goods will effectively crash the sky-high valuations of these assets.
That will reduce the value of whatever generational wealth the Boomers have left to pass on. Since many Boomer households are currently paying for three generations--soaring college costs for their Gen-Y offspring, care for their elderly Silent Generation parents and their own expenses--how much wealth they will have left once Gen-Y is dominant is an open question.
These factors suggest a generational [shift] against banks, Wall Street, housing and luxury retail.
...it's just one potentially interesting speculative consequence of the changing of the generational guard.