America’s dream home is shattered

Editor’s Note: A version of this story appeared in CNN Business’s Nightcap newsletter. To get it in your inbox, sign up for free, here.


new York
CNN business

A little over a decade ago, the dominant narrative about the real estate market was that millennials just wouldn’t buy. They were either too cheap, lazy, or itinerant to embark on something as weighty as a mortgage.

Cut to 2020 and that narrative has been turned on its head. It wasn’t that millennials didn’t want houses in the suburbs, they just couldn’t afford them. But as the pandemic hit and real estate demand exploded, the excitement was fueled by people in their 30s — who had finally blushed after years of struggling with the jobs they had left in the aftermath of the Great Recession and for many eager to escape into the expanses of suburban life.

(It also didn’t hurt that dizzying stock rises meant Baby Boomer parents with large investment portfolios were happily passing on some of those gains to their beloved millennial kids.)

As the housing boom begins to burst in 2020, those who have managed to close a home amidst a crush of competition fueled by rock-bottom mortgage rates should consider themselves extremely lucky.

Here’s the deal: On Thursday, a new report showed that first-time buyers accounted for just 26% of all homebuyers in the year ended June — an all-time low in the four decades that the National Association of Realtors has conducted its survey.

In historical comparison, the proportion of first-time buyers in the last ten years has been between 30% and 40%. In 2009, in the middle of the Great Recession, it was 50%.

More bad news for younger Millennials and Gen Zers hoping to buy their first home: The typical age of a first-time homebuyer is now a record 36, up from 33 last year.

It’s not hard to see why: First-time buyers have less money saved and don’t have the equity that repeat buyers have.

“They need to save while also paying more for rent, college debt, child care and other expenses,” said Jessica Lautz, vice president of demographics and behavioral analysis at NAR. “And this year we’ve faced rising house prices while mortgage rates are also rising.”

Oh, and one more thing: In addition to rising mortgage rates, home prices have also soared, with the median peaking in June at $413,800. (Imagine your starter house costing 400 grand!)

All of this is also driving up rental prices as potential buyers choose to (hopefully) save further for a down payment.

MY TWO CENTS

Housing is broken. I’m not claiming to have a silver bullet, but it’s clear that inventory limits and legacy zone limits are a big part of the problem.

“The policies that regulate land use and housing production make it extremely difficult to create more housing in desirable locations,” writes Jenny Schuetz, urban economist at the Brookings Institution.

The United States, she argues, has failed to build enough homes and continues to build too many homes in the wrong places.

Instead of rebuilding within existing neighborhoods, the housing supply has expanded through “sprawling single-family subdivisions on the outskirts”. That brings more people and homes to environmentally vulnerable areas, such as B. in western regions threatened by forest fires.

With affordability reaching crisis levels, now is a good time for federal and local governments to rethink how we are building the American Dream. But that will only happen if those who will benefit – Millennials and Gen Z – are better represented in elected office. As Schuetz argues, the upper-middle-class boomers now in power are understandably reluctant to change the system that got them where they are now.

Seventy-five basis points: all cool central banks do it.

Shortly after the Fed’s fourth straight rate hike of 0.75 percentage points, the Bank of England followed suit on Thursday, raising its own interest rate by the same amount – the biggest hike in 33 years. The European Central Bank did the same last week.

(Side note: “basis points” is how central bankers talk about interest rate movements, which usually happen in tiny increments. One basis point = one-tenth of a percentage point.)

Tomorrow, when the Bureau of Labor Statistics releases its October jobs report, it will be the economy’s last big read ahead of the midterm elections — and capping a week of new data signaling the white-hot job market is showing only tentative signs of cooling.

See here: The US economy is expected to add 200,000 jobs last month, up from 263,000 in September, but well above the pre-pandemic average. The unemployment rate is expected to rise slightly to 3.6% from 3.5% – still close to a half-century low.

But – there is always a but – this is not good news from the Fed’s perspective. And it could be very bad news for Democrats next week.

The Fed’s most aggressive monetary tightening in recent history — while pushing mortgage rates above 7% for the first time in 20 years, slowing corporate growth and depressing household spending — has done little to affect the job market.

In normal times, that’s news worth celebrating. But in the ebb and flow of 2022’s economy, there is cause for concern as it suggests the economy is overheating. That’s partly why the Fed announced its fourth straight three-quarter-point rate hike, the latest in a series of aggressive moves that would have been unthinkable just a few months ago.

Another strong data point on jobs will only reassure the Fed that the job market can handle more rate hikes.

The Fed would absolutely love it if everyone kept their jobs and only saw some “softening” in the labor market – say, a slowdown in wage growth or a drop in job openings.

But realistically, if the Fed raises interest rates, it will (ultimately) cause employment to fall.

Analysts across the board say the likelihood of a recession is high, if not guaranteed. But the Fed is betting that the pain of a recession (and the job losses that come with it) is preferable to the pain of runaway prices over the long term.

Unfortunately for the Democrats, who are trying to stay in power next week, the pain of inflation seems to outweigh any positive sentiment about job security. Three-quarters of likely voters already feel the country is in recession, according to a new CNN poll.

source

Leave a Reply

Your email address will not be published. Required fields are marked *