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