America’s housing dream is broken

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A little over a decade ago, the dominant narrative about the housing market was that millennials just weren’t buying. They were too cheap, lazy, or itinerant to commit to something as weighty as a mortgage.

Cut to 2020 and that narrative has been turned on its head. It’s not that millennials didn’t want homes in the suburbs, they just couldn’t afford them. But when the pandemic hit and demand for property exploded, the furor was raised by people in their 30s—finally closing in after years of floundering in whatever jobs they had left in the fall of the Great Recession, and for many, eager to escape to the wide-open spaces of suburban life.

(It also didn’t hurt that the skyrocketing gains in stocks meant that baby boomer parents with large portfolios were happy to pass some of those gains on to their precious millennial children.)

As the housing boom of 2020 begins to falter, those who were able to close on a home amid competition fueled by low mortgage rates should consider themselves lucky.

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

For a historical comparison, the share of the first buyers in the last decade ranges between 30% and 40%. In 2009, in the midst of the Great Recession, it reached 50%.

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More bad news for millennials and younger Gens hoping to buy their first home: The typical age of a first-time home buyer is now a record 36 years old, up from 33 last year.

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

“They have to save while paying more for rent, as well as student debt, child care and other expenses,” said Jessica Lautz, NAR’s vice president of demographics and behavioral insights. “And this year they faced the increase in apartment prices while mortgage rates are also climbing.”

Oh, yes, one more thing: In addition to rising mortgage rates, home prices have also risen, with the median hitting a record high of $413,800 in June. (Imagine your starter home reaching 400k!)

All of this also pushes rental prices up, as prospective buyers choose to keep saving (hopefully) for a down payment.

My two cents

The housing is broken. I don’t claim to have a silver bullet, but it’s clear that inventory limits and outdated region limits are a big part of the problem.

“The policies governing land use and housing production make it very difficult to add more houses in desirable locations,” writes Jenny Schutz, an 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 expanded through “wide subdivisions for families on the urban fringes.” This puts more people and homes in environmentally vulnerable areas, such as wildfire-prone areas in the West.

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

Seventy-five basis points: All the cool central banks do this.

Following the Fed’s fourth straight rate hike of 0.75 percentage points, the Bank of England followed suit on Thursday, raising its key interest rate by the same amount – its 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 moves, 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 last major reading on the economy before the midterm elections — and cap a week of new data that signal the red-hot job market is showing only tentative signs of cooling.

See here: The US economy is expected to add 200,000 jobs last month, down 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 near a half-century low.

But – there’s always a but – meaning, in the Fed’s opinion, bad news. And that could be very bad news for Democrats next week.

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The Fed’s most aggressive monetary tightening in modern history — while raising mortgage rates above 7% for the first time in 20 years, slowing business growth and cutting household spending — has barely made a dent in the labor market.

In normal times, this is the kind of news worth celebrating. But in the economy of 2022, this is cause for concern, as it implies that the economy is overheating. It’s also why the Fed announced its fourth straight hike of three-quarters of a point, 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 labor market can withstand further rate hikes.

The Fed would be very happy for everyone to keep their jobs and simply see some “softening” in the labor market – a slowdown in wage growth, for example, or a decrease in the number of vacancies.

But realistically, when the Fed raises interest rates, it results in employment (eventually) falling.

Analysts across the board say the odds of a recession are high, if not guaranteed. But the Fed is betting that the pain of a recession (and the job losses that will accompany it) are better, in the long run, than the pain of runaway prices.

Unfortunately for Democrats trying to hold on to power next week, the pain of inflation seems to be outweighing any positive sentiment about job security. According to a new CNN poll, three-quarters of likely voters already feel the country is in a recession.


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