America’s housing dream is broken

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A little more than a decade ago, the dominant narrative about the housing market was that Millennials simply weren’t buying. They were too cheap, 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 property exploded, the frenzy was driven by people in their 30s, finally fading after years of leaving whatever jobs they had left in the wake of the Great Recession and, for many, longing to escape to the open spaces of suburban life.

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

As the housing boom of 2020 begins to wind down, those who managed to close on a home amid competition fueled by rock-bottom mortgage rates should be very lucky.

Here is the offer: 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, a four-decade low that the National Association of Realtors has been conducting his survey.

For a historical comparison, the proportion of first-time buyers over the past decade has been between 30% and 40%. In 2009, in the middle of the Great Recession, it reached 50%.

More bad news for young Millennials and Gen Zers hoping to buy their first home: The typical age of a first-time home buyer 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 lack 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, vice president of demographics and behavioral insights at NAR. “And this year they were facing rising home prices, while mortgage rates are also rising.”

Oh yeah, one more thing: In addition to rising mortgage rates, home prices also shot up, averaging $413,800 in June. (Imagine your starter home is worth 400k!)

All of this is also driving up rental prices as potential buyers opt to continue saving (hopefully) for a down payment.

MY TWO CENTS

The house is broken. I don’t pretend to have a silver bullet, but it’s clear that inventory restrictions and outdated zoning restrictions are a big part of the problem.

“Policies governing 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, the housing supply has been expanded through “extensive single-family subdivisions in the urban fringe.” This is putting more people and households into environmentally vulnerable areas, such as wildfire-prone western regions.

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 benefit, Millennials and Generation 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 the cool central banks are doing it.

After the Fed’s fourth straight hike of 0.75 percentage points, the Bank of England followed suit on Thursday, raising its own 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 banks talk about 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, capping a week of new data that indicate the hot labor market shows only tentative signs. to cool off

See here: The US economy is expected to have added 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, which is, according to the Fed, it’s not good 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 reducing household spending, has done little an impact on the labor market.

In normal times, this is the kind of news worth celebrating. But in the bullish economy of 2022, it is cause for concern as it suggests the economy is overheating. That’s partly 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 spot in jobs data will only reassure the Fed that the labor market can handle more rate hikes.

The Fed would absolutely love for everyone to keep their jobs and see just a little “softening” in the labor market — a slowdown in wage growth, for example, or a decrease in job openings.

But realistically, when the Fed raises rates, it causes employment to (eventually) fall.

Analysts all 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 would accompany it) is preferable, in the long run, to the pain of out-of-control prices.

Unfortunately for Democrats trying to stay in 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 recession.

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