Monday, August 19, 2019

Young and Houseless

Have you ever heard the tale of the tortoise and the hare applied to personal finances?  The obvious moral of the story, as it relates to saving money, is that steadily and regularly setting aside money for the future is the path to success.
But a recent article in the Wall Street Journal clouds the lesson just a bit for some aspects of our financial lives.  Citing statistics from the National Association of Realtors and other sources, the article points out that home ownership among the 25- to 34-year-old population in the U.S. is at about 40%, down from 48% in 2001.  The median age of today’s homebuyer is 46, the highest since the statistic was first tracked in 1981.
One explanation for this is that this cohort entered the workforce during the Great Recession.  Generally speaking, they either struggled to find jobs at all or accepted lower starting wages just to land a job.  They had no real bargaining power.  Add to that the slow pace of economic recovery and wage growth and the upwardly spiraling cost of lower-end starter homes (up 64% between 2012 and 2018 according to mortgage-data tracker CoreLogic) and the younger generations are at a distinct disadvantage in terms of affording their own home.  Because they often rely on parents for assistance or even a place to live, they are not as mobile and may not be able to move to take higher paying jobs.
So a slow start (i.e. a lower starting salary) is not a good start, and regardless of whether they save steadily and reduce debt, they may well remain behind the home ownership curve for a long, long time.  Inflation is outpacing their ability to grow their income and catch up and afford to purchase a home.
I have just two suggestions for dealing with this.  First—and this is especially true in the current “full employment” environment—try to negotiate a higher salary when you start a new job.  (Or if staying with your current employer, ask for a raise if you can justify it to the boss.)  Netting just a couple of thousand dollars more gives you a “faster” start.  And I’ve not heard of an employer withdrawing a job offer just because a new hire politely asked for more money.  At worst it’s a “not at this time” reply.
Second, the only way to beat the inflation that is beating you and keeping you from owning a home is to get into the market and let the inflation work for you.  Even if your first home is not in ideal shape, maybe even on the small size compared to what you want and thought you deserved for your first house, buy it anyway if it’s all you can afford.  (Of course, do your due diligence; don’t buy a house that will take all your money to repair, has payments you can’t afford, or is in a neighborhood where the value is not likely to appreciate.)  Just getting into the market, letting the value of your house grow, and getting out of the cycle of annual rent increases will put you ahead of others in your age group and help build net worth.  I am still a firm believer in the concept of home ownership by responsible individuals being a sure way to build financial security.
There is a third suggestion:  Wait for the next recession.  Falling stock prices, falling housing prices, spell opportunity for want-to-be buyers, as long as their jobs and income are secure.  That’s why there is always a rebound after a recession.

Until next time,


“Use wisdom and understanding to establish your home; let good sense fill the rooms with priceless treasures.”  Proverbs 24:3, 4 CEV