America’s housing dream is broken

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


New York
CNN Business

A little more than a decade ago, the dominant narrative about the housing market was that Millennials just weren’t buying. They were either too cheap, too lazy, or itinerant to commit to something as heavy 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 when the pandemic hit and demand for real estate exploded, the furor was fueled by people in their 30s — finally escaping after years of lingering in whatever jobs were left after the Great Recession and, for many, eager to get out into the open. of suburban life.

(It also didn’t hurt that skyrocketing stock gains meant that Baby Boomer parents with large investment portfolios were happy to pass some of those gains onto their darling Millennial kids.)

As this 2020 housing boom begins to wind down, those who were able to close on a home in the crash of competition fueled by low mortgage rates should consider themselves extremely 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 ending in June — an all-time low in the four decades the National Association of Realtors has been conducting its survey.

For a historical comparison, the share of first-time buyers over the past decade has been between 30% and 40%. In 2009, in the middle of the Great Recession, it was as high as 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 cash saved up and don’t have the equity that repeat buyers do.

“They have to save by 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. “Once again this year we’ve experienced rising house prices, while mortgage rates are also rising.”

Oh, yeah, one other thing: In addition to mortgage rates going up, home prices also shot up, with the median price peaking at $413,800 in June. (Imagine your starting house is 400 grams!)

All of this also drives up rental prices, as would-be buyers choose to keep saving (hopefully) for a down payment.

MY TWO CENTS

The house is broken. I’m not supposed to have a silver bullet, but it’s clear that inventory restrictions and outdated zone restrictions are a big part of the problem.

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

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

Instead of rebuilding within existing neighborhoods, housing supply has been expanded through “extended single-family subdivisions on the urban fringe.” This puts more people and homes in environmentally vulnerable areas, such as areas of the West that are prone to wildfires.

As affordability reaches crisis levels, now is the time for federal and local governments to rethink how they 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 Schuetz 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 cool central banks do.

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

(Side note: “Basis points” is how central bankers talk about interest rate moves, which usually happen in small 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 it will cap a week of new data that signal the labor market is showing only signs of cooling.

Watch here: The US economy is expected to have added 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 near a half-century low.

But — there’s always a but — that is, from the Fed’s point of view, not great news. And it could be very bad news for Democrats next week.

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 curbing household spending — barely made a dent in the labor market.

In normal times, this is the kind of news worth celebrating. But in the bullish economic data of 2022, it is cause for concern, as it suggests that the economy is overheating. That’s partly why the Fed announced its fourth consecutive three-quarter hike, the latest in a series of aggressive moves that would have been unthinkable just a few months ago.

Another strong jobs data point will only reassure the Fed that the labor market can withstand more rate hikes.

The Fed would certainly like everyone to keep their jobs and just see some “softening” in the labor market – a slowdown in wage growth, say, or a reduction in jobs.

But realistically, when the Fed raises interest rates, it leads to a decrease in employment (eventually).

Analysts across the board say the chances of a recession are high, if not guaranteed. But the Fed is betting that the pain of a recession (and the job losses that would accompany it) is preferable, in the long run, to the pain of soaring prices.

Unfortunately for Democrats trying to hold on to power next week, the pain of inflation appears 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 recession.

Leave a Reply

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