You might’ve argued — and some forecasters apparently did — that existing home sales in the US would be higher last month.
After all, mortgage rates hit a two-year low in September, ostensibly improving the affordability calculus for scores of Americans waiting to buy.
Of course, existing home sales are a lagging indicator. So, if you were skeptical of predictions for a meaningful uptick, good for you. To be fair to the glass half-full crowd, rates were sharply lower by August, so there was time to sign, lock and close by September.
Based on Wednesday’s update, buyers were reluctant. Existing home sales dropped 1% last month, the NAR said. Consensus expected a small gain.
August’s annual rate was revised slightly higher, but that month still shows a decline from July. As the figure shows, this a never-ending malaise.
“Home sales have been essentially stuck at around a four-million-unit pace for the past 12 months,” Lawrence Yun sighed. “But factors usually associated with higher home sales are developing,” he went on, citing incrementally higher inventory and lower mortgage rates versus a year ago, as well as a still-healthy jobs market. With apologies to Yun, who I’m sure is a nice enough guy, he’s been saying more or less the same thing every month for two years.
Needless to say, prices remain high. The median was $404,900 last month. That’s well off the record levels seen earlier this year, but if you just do the simple math on the median annual income and the average family’s debt profile, the numbers look pretty challenging, even with a respectable downpayment. If you make six figures, have no debt (where “no debt” means none whatever), your credit score’s 750 or higher and you have 20% to put down, you’re gonna be fine, sure. But that’s just not most Americans.
The figure above shows yet another YoY gain on the NAR’s median price series. Indeed, the pace quickened in September.
At this point, it just kind of “is what it is,” as much as I despise that meaningless excuse for an aphorism. Homeownership may not be on the cards for a lot of younger Americans anymore, to be brutally honest about it.
If you’ve been around anyone aged 20-35 recently, you know they’re not much for asceticism. That’s not to say they aren’t (or aren’t capable of being) frugal, nor that they aren’t disciplined. It’s just to say that this is a cohort raised on what I’d describe as mainstreamed luxury. When I was in my teens and 20s, you never saw Italian and French designer brands outside of major metropolitan areas, there were no smart phones, let alone iPhones, every other car was a Corolla not a BMW 3-series and if you were in a home with granite countertops, you were probably at a fundraiser or a cocktail party.
Now, luxury — in all its manifestations — is expected, at least in America, and it’s hard to see how a generational cohort accustomed to such things is going to psychologically square the circle with what they can afford in today’s housing market.
Bottom line: A 30-year-old couple who wants to match their home to everything else they own (or to everything they’re making payments on) will need to spend $650,000 at minimum, and that’s if they’re in a cheap locale. If they’re shopping in the big city suburbs, they’ll need seven figures and a quarter million for a downpayment just to have a conversation.
I don’t see it, frankly, and my guess is that a meaningful share of younger Americans don’t care all that much. It’s probably the case, particularly given the lengths developers are going to on the “amenities” front for all the “luxury urban living” rental communities cropping up in larger cities, that young professionals increasingly don’t consider homeownership part of their “American dream.”
Anyway, that’s all speculation. I’m around people in person, but I don’t talk to them. I’m just extrapolating from observation. I could be completely wrong.
As far as home sales go, it’s worth noting that pending sales (i.e., contract activity) on Redfin’s more timely data rose 2.5% last month. Apparently at least some Americans were savvy enough to get the ball rolling while the “gettin’ was good,” so to speak.
45% of 18-29 year olds live at home with their parents.
Median age of giving birth is now 30.
People stay in jobs for shorter periods of time and generally want to be more mobile.
Young people probably broadly fit in two camps. The first expect to inherit a home so why bother saving, the second know they’ll never be able to afford on so why bother saving.
Add to that “keeping up with the Jones’ on steroids” thanks to social media, the desire for short term dopamine hits, and the expectation of luxury.
Put all this together and you have a significant cohort of young people that just want to spend and enjoy life.
Yeah and I gotta say, as someone who’s hated every light bulb he’s ever had to screw in and every lawn he’s ever had to mow, no matter how small, if I had it all to do over again, I’m not sure …… Well, you get the idea. I think the value proposition of the “American dream” might’ve been at least open to question if not actually questionable from a “do the long-term math” perspective even during the best of markets. And these are most assuredly not those markets.
Even the Summer of Love/Woodstock Generation grew up and decided to prioritize personal economic gain. Now, we refer to those people as “greedy Boomers”.
It’s going to take awhile for nominal incomes to catch up to home prices to get things back in line. The US probably needs relatively flat nominal prices in housing for 5-7 years, and lower rates to borrow. This adjustment is not going to happen overnight. I don’t think the younger generation is all that different but they have a different set of challenges and opportunities. Their choices reflect that.
I can not imagine “stretching” to purchase a home right now- with so much uncertainty over future appreciation (as in: over the next decade), and increasing real estate taxes/insurance costs that are outpacing inflation. Also, condo ownership can be fraught with “one time assessments” for repairs/replacements that aren’t adequately reserved for by the association. Most people probably don’t do adequate “due diligence” on the status of condominium association reserves and future necessary improvements prior to purchasing; in order to budget for any additional “one time” costs they might have to pay for.
I live an unusual life in 3 condos that I rent out when I am not living in them. On the plus side: rental income usually covers taxes, insurance, repairs/maintenance and HOA fees. However, not this year because all three condos had special assessments: for a roof; a tripling of insurance premiums; and basement issues. In total, about $50k. I can afford this, but something like this could be devastating to an entry-level buyer, who stretched, financially, to make a home purchase.
I hope my daughter/son-in-law continue to rent until they can afford to purchase a SFH that needs some work- which through “sweat equity”, they can increase the value. That is the “old school” way for figuring out how to afford a nicer house, without paying a premium for something that is already perfectly done with high end everything. Plus, if you are with the right person, in can be fun to renovate/live through the dust and inconvenience together. After all- “what doesn’t kill you, makes you stronger”.
Frightening – I sound like my parents! 🙂
I’m late to the conversation, but I think you’re absolutely correct about 30 y/o buyers. My 31 y/o complains “I could never afford this house”, and that’s her starting point. Nevermind the s***box starter homes we’ve owned. There’s plenty of starter homes she could afford one zip code away, but yeah there’s no granite counters and en suite bathroom…
I also suspect that part of this is at least tangentially related to a more secular outlook among young and young-ish adults. I think it’s fair to suggest that a majority of young adults in America know there’s no “God” and no afterlife and there’s no “reward” for living out some manufactured idea of “virtue,” which in America includes buying a home with a fence and using it as a piggy bank. On some scores, it’s a ridiculous prospect when you think about it: Contractually obligate yourself to 30 years of payments on a tiny parcel of land with a small dwelling built on it because… I think a lot of late-20s / early-30s can’t finish that sentence. That is: “Because why?” I don’t know that I have an answer for them. I mean, I do, but not one that’s especially compelling if you understand, as a lot of them do these days, that it’s all — everything, life and all of it — bullsh-t.
Jesus H, that was deeply dark and cynical. I come here for the straightforward takes but that’s just a lot to read over my morning coffee. Did you have any before you wrote that? Lol
It’s the truth! You think today’s 30-year-olds give a damn about a white picket fence, a retirement account and Sunday dinner? Hell no. They want a Prada bag, concert tickets and a downtown apartment with a rooftop lounge and a pool overlooking the city.
And who are we to criticize that? They can fund that lifestyle on prob $5,000/month, easy. Is that “wasted” money? Yeah. In many respects it’s absolutely wasted money. But as one reader mentioned above, these “kids” aren’t stupid. Every 30-ish in America who’s white and comes from an upper-middle-class family is thinking the exact same thing: “My parents are certainly going to die within 25 years, 20 if I’m really lucky, which means when I’m 55, give or take, I’m getting a free house and whatever’s left of their retirement fund. So, there’s no point in overpaying for a tiny little sh-t house that I don’t want. I’ll go to work, get my health benefits, my 401K matching, and I’ll have my Prada, my car, my sweet apartment and my awesome lifestyle, and then once these people finally die, I’ll have a paid-for house and at least a couple hundred thousand to add to whatever my nest egg is by then.”
When you guys and gals look your kids in the eyes, just know that’s what they’re thinking. That’s their plan. And it ain’t a bad plan! This is 2024, folks, not 1950. This is a Machiavellian world. Them kids don’t give a damn about you, or anything else other than themselves. And God bless ’em for it.