What The Housing Market May Tell Us In Answering That Question
Friday, June 28, 2024
Last year, my wife and I were blessed to be able to purchase our first home. It was something I had been planning, and saving for since I graduated from college in 2018. However, in many respects, the process was a difficult one. There were not a lot of houses available and interest rates had climbed considerably. In our area of Fort Worth, many of the houses were selling for above asking price and often for cash. It was an environment we felt like we couldn’t compete in!
U.S. Representative Leonard Boswell said “The American Dream is one of success, home ownership, college education for one's children, and to have a secure job to provide these and other goals”. I think he’s largely correct! But what happens when one of the steps to achieving the American Dream, home ownership, begins to become increasingly unattainable for young Americans? This is something I rarely see discussed in the news, but I often hear discussed sitting around a dinner table with my peers. In fact, in a recent poll commissioned by Redfin regarding the upcoming election, “Gen Z’ers were more likely to rate housing affordability as an important factor in their vote than any other issue they were asked about, including the economy, abortion and gun rights, preserving democracy and foreign wars.”
What caused the current housing issues? There is no one, easy culprit to point to. It is instead a confluence of factors such as internal migration due to COVID 19, increased interest rates, increased immigration since 2021 (more people means more need for housing), and most importantly institutional buyers of single family homes.
What happens when one of the steps to achieving the American Dream, home ownership, begins to become increasingly unattainable for young Americans?
For those unaware, Institutional home buyers are large corporations that purchase single family homes in large quantities. Most of the time, they turn them into rental properties. In March I read an article in the Texas Tribune that stated the following: “Texas led the nation in home purchases by institutional investors in 2021, according to the National Association of Realtors. 28% of all homes sold that year went to an institutional investor. That share was even greater in exceptionally high growth markets like Tarrant County, where investors accounted for some 52% of home sales.” That’s no small percentage. Good luck to any 20 something trying to outbid BlackStone for a 2 bedroom starter home.
Why is this such a problem? It has long been said that home ownership is the cornerstone of building generational wealth. The numbers bear this out. A survey of the consumer finances released by the Federal Reserve in September of 2020 shows homeowners in the U.S. had a median net worth of $255,000, while renters had a net worth of just $6,300. That’s a difference of 40x, a pretty serious gap. Young Americans not being able to purchase a home is projected to effect quite a lot. It could mean higher levels of consumer debt, less retirement savings, and even a sharp decrease in both marriage and birth rates. Serious stuff.
No one person can fix these issues, but there are some steps that young Americans can take to help ensure that they can purchase a home and start building equity.
1. Be Financially Healthy: This may sound obvious but good financial habits can help set you up for success. Things like living below your means, knocking out any consumer debt you may be carrying and saving and investing any extra money can go a long way toward success in buying a home. You’ll need to have savings for your down payment, closing costs, as well as other odds and ends.
2. Look Outside Your City: The mass adoption of remote work during the pandemic has resulted in a lot of new opportunities for young people to maintain jobs while moving outside of large (and expensive) population hubs.
3. Look into FHA, USDA, and VA Loans: Depending on your situation, you might qualify for an FHA, VA, or USDA loan. Each of these has different requirements to qualify, but all three offer an alternative to a traditional mortgage, that in some cases can make the process easier. However, It’s important to note that these can also come with increased mortgage rates depending on the circumstances.
4. Be Prepared: When the time comes to purchase your home, set yourself up for success by getting pre-approved for a loan before you start trying to put down a bid on a house.
It has long been said that home ownership is the cornerstone of building generational wealth. The numbers bear this out.
As I mentioned before, there is no quick fix to this problem. Many, many people are going to have to come together and agree on solutions to help ameliorate the issue. I have faith that our country and our economy can figure this out. In the meantime, young Americans are going to have to be extra diligent when it comes to their finances to help ensure that they can achieve perhaps one of the most important step towards real wealth building.
If you have any questions, please feel free to reach out! If you know someone that might find this blog post helpful, please feel free to forward it to them.
I hope you all have a great weekend, and a Happy Fourth of July!
M. Grant Pannell
(The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly.)
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