… or they could plow the savings from avoiding home ownership into the stock market, retire early and become wealthy over time.
Also, I lost faith in the value of hard work once I realized that just about the dumbest thing you could do in America, tax-wise, is to work for wage & salary income.
{{ They don’t think they’ll ever be homeowners. So they stop trying, and focus on the here and now.
That’s the interpretation put forth by economists Seung Hyeong Lee and Younggeun Yoo — doctoral candidates at Northwestern University and the University of Chicago, respectively — who built a mathematical model of consumer behavior. When people conclude that they will never be able to afford a home, they put less effort into their jobs, tend to spend more on luxuries and do less long-term saving, and are more likely to invest in riskier assets such as cryptocurrencies, the economists’ findings suggested. }}
The oldest boomers are 80. They will begin croaking or want to move into a retirement facility. And they believe they have quite a bit of equity value in their home. But most young people do not have the money to buy. Will residential real estate take a hit? Worse than 2008? Will private equity buy up their homes at reduced pricing?
Anybody got thoughts on this?
Same problem as during the OPEC embargo and 13% interest rates. Probably the same as during the internet crash. Probably a headline that could have been used a half dozen times during my lifetime, and probably before that as well.
I don’t know where it comes from, but them young’uns have unrealistic expectations. My nephew, graduating college was asked what he wanted to do. He said “Run a business or something.”
We tried to let him down gently, but it didn’t take. He’s living with Mom & Dad.
Does this mean most people will be renters? Will they be homeless? Will they have assets to retire on?
They tell us home ownership is much less common in Europe. Many more rent. Renters do not accumulate real estate equity—a major contributor to consumer wealth or assets in the U.S. Does that make them more sensitive to inflation? More dependent on pensions and/or govt payments? Lifetime employment?
Does this mean the U.S. is destined to follow the European model?
One of my neighbors bought a home in the Columbia River Gorge and is trying to sell her condo (which has been thoroughly updated to the latest fashion. I still have the original 20-year-old appliances in my kitchen.)
I explained to her that one of two things has to happen for her to sell her home at the asking price.
Interest rates have to return to the 2.3% she has on her refinanced mortgage.
Or people have to suddenly start earning 50% to 100% more money.
Cutting interest rates is probably the shorter reach.
No. Overall percentage rates of homeownership in the U.S. remain in the mid-60’s. That’s lower than the mid-2000’s peak, but still higher than most of the 20th century.
Why would a buyer care what rate she has on a refinanced mortgage? They only care what their rate is, and how it comports with the new rate they might have to pay (assuming they buy with a mortgage (around 1/3 of all home purchases are for 100% cash.)
About a quarter (and by some estimates nearly a third) of boomers are already dead!
This is only part of the problem. Another part of the problem is that the younger generations that do have the money often want different kinds of houses (different layout, often different size, different amenities, newer, etc) than most of the boomers have for sale. And sometimes they want houses in different locations, or different neighbors, or different school districts, etc.
Mortgages tend to be based on the 10-year treasury rate (because their average duration is somewhere in that range). And the 10-year treasury rate can’t be “cut” per se. It is pretty much determined by supply and demand. Only very short term rates can be cut in this sense.
Yes she could, And if the buyer defaults, and she has to foreclose, she may get to sell it AGAIN someday in the future!
I’m a boomer.
IF I were to buy a house, it would be newer, with today’s insulation, today’s wiring, today’s amenities.
While I’m at it, I’d get the size n layout I want, too.
I don’t blame the “younger generations” for NOT wanting granny’s “antique”.
I’m the same! Seems like every time I want to upgrade something in my [old] house, I come across something, and something else, and 10 other things, that need to be done before I can do that upgrade. Not to mention that code was different when this house was built, which makes many things way more difficult.
Around here, many people buy houses and either tear them down completely and build all new, or gut them and start over with a slab plus some concrete block walls, plus some changes.
I don’t blame them either. But they need to realize that if they want 2 1/2 times as much home (950 “boomer” sq ft versus 2350 sq ft today), and much better and nicer finishes, then they are going to pay a lot more in relative terms.
The house we wanted in retirement appears not to exist because people apparently want quality homes to also be large homes. If I wanted to pay an extra hundred thousand or more for a 1200 square foot retirement home with the highest quality roofing materials, insulation, wiring, etc, I would have had to buy a lot and have the house built to my specs.
We finally ‘settled’ for a 2800 square foot retirement home because the neighborhood in this small town that had the highest quality materials also had a minimum size requirement. In this country, size and quantity seem to matter more than quality.
Kind of. But it only works to a certain extent, and it can only work temporarily. That’s because of … supply and demand again. Heck, the Fed already holds something like $1.6T of 10+ year treasury debt on their books!
Look at it this way - let’s say you need to issue $2T of 10+ year debt each year. There’s a market demand for $1T at 3.5% rates, $1.5T at 3.75% rates, and $2T at 4.0% rates. If the Fed jumps in and buys $300B of it a year, the rates will still remain roughly at or near 4%, maybe a little bit lower (keep in mind, it is a continuous market, and rates will fluctuate based on demand). If the Fed jumps in and buys $600B a year, maybe rates will drop below 4%. But as the Fed balance sheet grows, others who anticipate and eventual ending of Fed buying will be reticent to buy long bonds because then the Fed slows/stops, the rates will naturally rise due to the lessening of demand. And unless the Fed plans on buying ALL long bonds (obviously can’t really happen because then it is pure currency debasement), this can’t continue for very long. It is usually tolerated during emergency situations, sometimes even if politics extend an emergency situation for far longer than necessary (as they did with COVID).
So, in short, the Fed can somewhat influence long rates, but not as much as we think, and not over the long term. Even if the Fed succeeds in lowering the 10 year treasury from 4.14% today to 4% or to 3.9%, that will barely affect mortgage rates. They may drop from 6.3% to 6.2% or even 6%, but that won’t make much of a dent in the housing market. Furthermore, mortgage debt has its own market to some extent, and it also trades based on supply and demand. So much so, that the Fed usually decides to ALSO buy some mortgage debt in the open market to help lower mortgage rates directly. But again, all the limitations mentioned above regarding treasury debt also apply to mortgage debt.
This is indeed a problem for retirees. I think it’s because of two main issues:
Most retirees, when moving from their “family raising home” to their “retirement home” want to REDUCE the typical home ownership responsibilities. That leads them to look for condos instead of single-family homes. Instead of maintaining a home directly, they pay a condo fee for someone else (the condo association and maintenance company) to do the maintenance for them.
Many retirees don’t care about “quality” per se, they care more about cost. And they figure, I’m only going to live there for 10 or 15 years before moving into an independent living place, or an assisted living place, anyway. Why care about the quality of the roof if I won’t be living there when the roof needs to be replaced?
Here in south Florida, they seem to have at least partially solved your problem by building retirement communities. Some of them are apartment buildings, but many of them are small or medium sized houses. You get your own house, you can do your own remodeling and interior decoration, but there is a homeowners association that takes care of all the external stuff - they do the lawn work, they do the house painting, they do the roofs, and the fences, etc. They also have communal spaces that everyone shares, the pools, the tennis courts (and pickleball), fitness center, and similar things. Some even have a community center where there are movies and periodic shows or cultural events or various other forms of entertainment. These communities come in all levels of quality and luxury.
Studies have shown more of an effect. A 2011 paper concluded that “mortgage-backed securities purchases in QE1 were crucial for lowering mortgage-backed security yields as well as corporate credit risk and thus corporate yields for QE1” and that “Treasuries-only purchases in QE2 had a disproportionate effect on Treasuries and Agencies relative to mortgage-backed securities and corporates, with yields on the latter falling primarily through the market’s anticipation of lower future federal funds rates.” [1]
A 2014 paper looked at the 2008-11 QE and found the rate reductions were effective for durations of less the 12 years. [2]
This could mean that a boomer’s belief that their current home has a larger equity/market value than it actually has to a current younger buyer. That means a haircut on what a boomer will receive on the sale of their house. Or they remain in the house and pay for home care via a mortgage on the house.
