The American Dream Without a House? Believe It

Investment Analysis Clubs Macro Economic Trends and Risks
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{{ But in today’s market, where mortgage rates are high and property taxes have been on the rise, there are all sorts of added risks. “All too many homeowners fail to anticipate the total cost of ownership, including insurance, property taxes and maintenance,” said Mark Hamrick, a senior economic analyst at Bankrate, who noted that many homeowners take on debt to pay for these “hidden costs.” Besides, sky-high prices very well may be forced to come down. Young people today could just be increasingly cleareyed about homeownership.

That doesn’t necessarily mean they’re not thinking about long-term financial stability. Many are investing more in stocks, contributing to retirement accounts and earning extra money through side hustles. According to the 2024 Charles Schwab Modern Wealth Survey, the average age at which boomers started investing was 35. For Gen Z, however, the average age was 19, and for millennials, it was 25. And in a Bankrate survey from last year, Gen Z respondents were the most likely to say they were ahead of where they should be for retirement savings. }}

https://www.nytimes.com/2024/09/07/realestate/american-dream-homeowner-young-people.html?unlocked_article_code=1.Jk4.xCBn.3BBrbV86eJjR&smid=url-share

I’ve found that if you concentrate on putting your money in assets like stocks which have a much higher return, and much lower transaction costs than owning a home, you’ll be able to rent a castle if you think you need one. I was only willing to buy a home if I could find one with some prospect of getting the unleveraged return of the S&P 500 on it. Absent that, I’d still happily be a renter.

Sounds like many young people are coming to the same understanding of the arithmetic of home ownership.

intercst

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where I’m at, google says the median home purchase price is approximately $400K. And this price point would not get the buyer anything special. Google says the average income for the area is $60K.

So with 20% down, the monthly payment ( just to service mortgage, not including prop taxes, maintenance and upkeep) would be about $2200/month. So that’s 44% of the average income earners gross pay.

Sure feels like house prices have got to come down. Unless
VRBO buyers just continue to skew the market higher. But I can’t believe that is sustainable.

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One minor quibble.

You use median home prices but average income. Admittedly, finding median income stats for a local area can be more difficult and it is unlikely to move the needle drastically on your final analysis. That being stated, median national income is about $80k while average is closer to $60k. So if your numbers were the same, 33% would still be too high.

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We’ve posted here recently that middle class lifestyle requires $100k and usually job training to get there.

If you live in an area with much less than that home maintenance probably gets deferred. And housing is in decline. It’s only a matter time. Housing values are probably declining. You are living in a future slum.

Job training is important. And well worth the effort.

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I’ve only had 1 class in statistics, and it’s been a very long time, so I probably screw that up a lot,lol.

But housing does still seem unaffordable for a lot of Americans. Seems unsustainable, and not sure how prices are going to hold up. But they have risen throughout the State, in areas that do not have high average household income, somebody has been willing to pay the high prices.

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A lot of somebodies. A confluence of an increase in incomes during Covid (average income went up something like 6% due to all the EXCESS Covid handouts) a significant reduction in spending and a corresponding increase in savings (no one was spending all that excess income since most things were closed or not available), historically low interest rates, and a historically low amount of inventory due to almost no new starts for months created nearly a perfect storm in house price inflation.

I don’t see it being fixed until we get a massive amount of starter homes - which seems unlikely. Unfortunately, the greatest amount of price inflation has been in those starter homes. I remember starter homes (1100 sq ft) in my old neighborhood going for less than 90k new at the turn if century (just looked it up, 87k in 2004). They now cost over 200k.

I don’t think we will ever build enough supply to bring that 200k home down much in value (absent a major recession/depression).

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Maybe homebuilders are working the same strategy as the automakers, and Disney theme parks: they only want the customers they can make the most money off of. So they exit the low end markets, and they push prices higher and higher, without end, on what they do offer?

I have lived in this Detroit burb since 96. Over that period, I don’t remember builders offering anything but mcmansions. All the normal sized houses date from the 80s, and before.

Steve

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Ya, I don’t know where the margins are the highest. My current home sits ona lot that could hold three of those starter homes and without knowing the cost to build each, it is difficult to say just where the money is…

But, I do know that the value of those starter homes has increased at a MUCH faster rate than mine (my home value certainly has not gone up over 100% since I purchased it - but the home I sold did), so it would be fair to assume that it might be more profitable to build three 200k starter homes than to build one of mine today.

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House building and permitting processes are controlled at the local level. Same with Airbnb/Vrbo. And each home builder individually decides what the most profitable activity is for them (luxury homes).

We have a national problem but no mechanism to address it in a national way.

Figure that out and the lack of housing / affordability of housing can begin to be solved.

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THIS. If you want a sneak peak of what is happening to the future housing stock of America, watch any video on the Just Rolled In channel on YouTube.

It’s a weekly collection of video clips mechanics from all over the country record as they inspect cars brought in for repairs. The clips aren’t amusing, they’re appalling. And frightful.

Completely broken frames disguised with black paint. Completely disconnected ball joints in front suspensions. Missing brake pads. Cracked rotors. Failures due to customers attempting their own maintenance because they cannot afford a mechanic but know NOTHING about doing the work themselves.

Car manufactures like to point to statistics about the average age of cars on the road going up as signs that longevity and reliability have improved. Well, no… Not really. The fact that there are cars that are 17-25 years old still driving around often means those driving them cannot afford any new car, even if they were available for $20,000. Instead, they keep getting ripped off buying junkers as used cars that should be sent to the crusher then continue getting ripped off by repair shops or “friends” who keep patching them to appear capable of getting them to work.

If these people own homes, they don’t have the cash flow to replace a roof every 15-20 years or patch cracks in the foundation that are causing the house to shift, correct plumbing problems that are triggering black mold inside walls, etc. They’re just hanging on for dear life and hoping the house doesn’t collapse around them.

WTH

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One presidential candidate has plans to address this issue. At least by easing the permitting problems. Maybe by assistance with downpayment.

It is a recognized need. What is the best solution to the problem?

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Seems like there is conflict between buyers and sellers. Buyers want cheaper, affordable housing. Sellers deal with rising costs of labor and materials.

What is the solution? The result is homeless people living in tents. Once they were called Hoovervilles. The Hooverville era returns.

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I don’t have one. I’m not sure down payment assistance is the answer to high housing costs… Just like college loans were never really a solution to high education costs (it just drove tuition even higher).

Both are an available supply vs demand problem.
Demand is what it is. But supply is a local phenomenon driven by local & private self interest.

What national policy(ies) can be crafted to realign local (government) & private (builders & landlords) self interests to significantly increase affordable supply? Without just acting as a cash transfer to builders (buyer tax credits)?

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If everyone did that, there would no longer be a “shortage” of starter homes, and the price (profits) would fall.

Borrowed a pic off of Google. The three mcmansions the arrows point at are on a lot that used to be occupied by one house, a nice, rambling, 50s ranch. Much more profitable to tear down a perfectly nice house, and build three mcmansions, with the cheapest materials available.

housed
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If everyone did that, there would no longer be a “shortage” of starter homes, and the price (profits) would fall.

That applies to ANY increase in supply. Build more mcmansions and profits will fall.

Your reply doesn’t really address my response. Sure, it is more profitable to tear down a single story ranch sitting on 2 acres and build 3 multi-level houses. No one would argue otherwise.

The question is whether or not it would be just as profitable, if not more so, to instead build six or even eight smaller houses on that same land. I don’t think it was so 5 years ago but today?!? It might be.

image

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Houses like the ones in your pic have not been built around here since the 80s. My little condo was also built in the 80s, along with several other small condos. They don’t build condos like this anymore, either.

There was an open field down the street from me. Someone had a few longhorn steers in there. The guy finally put the lot up for sale.

Pulte bought the lot, and threw up these things. The houses are virtually identical, just like 50s tract houses, on tiny lots, but the houses are big and flashy.

Pulteed
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Here’s some new construction 3BD, 2BA single family detached in San Antonio, TX for $170,000. Of course, it’s a long commute to downtown.

For $170,000, you need to worry about the quality of the construction, but I’m sure they have access to cheap labor.

intercst

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Quality of construction? I can see the waves in the siding of the mcmansions around here from the street. I notice the lack of windows in that house. One on the back. Looks like a window in a door, and a window next to the door, somewhere. I have noticed that on the mcmansions around here too: real flashy front, bay windows with a copper roof, two or three superimposed gable ends. But hardly any windows at all on the sides or back. But then, the lots are so tiny, the houses crammed together, as close as the building codes allow, the only view would be of the cheap siding on the mcmansion next door.

My aunt and uncle in Columbus bought a new built condo in 99. Within ten years, they had to replace all the windows and the furnace, because what the builder put in was utter garbage.

Steve

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That is where the financial trickery comes in. If your mcmansion building program overruns the supply of people who can pay for them, create “innovative financial products” to qualify people who previously would not qualify for a mortgage on a mcmansion.

The auto industry has done the same thing. Used to be that three year financing was the norm. Now, you can finance a car for seven or eight years, knocking the monthly payment down, so people who used to be limited to a $20,000 car, can now be approved for a $50,000 car. Or you can lease, so you only pay for the depreciation, with nothing being applied to equity.

Steve

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I mosied over to the Dearborn museum tonight, to listen to a lecture by the principals of a building company that renovates houses around Dearborn. The speaker mentioned house flippers, who renovate houses in the nicer parts of Detroit. They use utter garbage materials, but then sell the houses for half a million, or more, because of where they are located.

Steve

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