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Reminds me of this viral Substack series: Part 1, Part 2..
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The median age of first time homebuying has gone up from 28 in the 1990s to 40. First-time buyers now comprise just 21% of all home purchases.
Nothing about this seems sustainable to me. At least the younger generation will inherit the houses? Well, no. Usually inheritance passes down to the next generation, which currently owns their own homes. And many elderly are forced to sell their houses to pay for eldercare, meaning that all that home value goes to the health care system instead of anyone else.
Ok, but then who are the elderly selling to? People in their 40s able and willing to get into tons of debt. OK, but who buys when you exhaust that group? Property investment firms who are able to rent the houses out. Can that go on forever? Well, if they're buying houses at a certain price, they're hoping the rent will be more than the mortgage over the length of the life of the home. This happens when rents increase over time. Will we always have more people looking for homes than there are available?
To put a finer point on it, it seems like the system requires that there be perpetually fewer homes than desired, but this is not really desirable as a society because we like when everyone has a home and punish people who do not have a residence. And, regardless of what's good or bad or anyone's wishes, eventually the population will decrease as the boomers die off.
Home prices have to fall, right? And I wouldn't even be mad about it, though I'd be one of those holding the bag. I'd like for my kids to afford a home. I'd put me in a precarious financial position until the bulk of the principle is payed off. But I will pay the monthly amount I agreed to pay because I'm an adult, and I'll be happy to see my kids in a better position than me because I'm a normal human being.
But anyone who was hoping to trade their $800,000 home for 8 months in hospice care might be in for a rude awakening.
Don't forget about reverse mortgages! Basically, boomers sell their houses while continuing to live in them, use the money to go on cruises, then when they die the house goes to the bank and their kids get nothing. I see tons of ads for them whenever I watch OTA television.
Truly they are the locust generation.
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I don't see how he gets his numbers.
Green:
Bureau of Labor Statistics (size of consumer unit by income before taxes: consumer unit of four people with income < 15 k$/a):
*I have submitted a pull request to fix this nonsensical CSS.
**Tax credit of 2 k$/(child⋅a) × 2 children overwhelms all federal income tax for a couple with taxable income < 37.2 $/a, which implies total income < 66.4 k$/a. I don't care enough to figure out the refundable "additional child tax credit" on top of that, let alone state income tax.
(Totals may not sum due to rounding.)
A lot of people complained about that, and it's really his fault but Part I is actually kind of Part 1.5. He wrote an article earlier about affording a home in Essex County, NJ, and used the numbers from MIT's Living Wage analysis for Essex County, New Jersey in his calculation. He wasn't expecting the article to go beyond his readership so he didn't really explain that part well until Part II.
That rather blatantly contradicts his statement in part 1 that he was using "conservative, national-average data".
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I think this statistic, plus this well-known one about Millennials being "behind" on homeownership, plus COVID, goes a long way to explaining the current run-up in real home prices. Compared to Boomers and Gen X, more Millennials preferred to remain renters. Then COVID hit, and that changed those attitudes, in a lasting way. So there's a fairly large group of older non-homeowners. Being older, they are wealthier than typical first-time homebuyers in years past, so they can outbid Gen Z (and younger Millennials) who are also in the market. That's the demand side. The supply side is also messed up, for various reasons including (but not limited to) the ideological success of anti-growth and anti-sprawl policies.
When the elders leave the houses (whether due to death, incapacity, or moving to a rental unit) they typically become available for another buyer, whether the money goes into healthcare or not. This will drive prices down. But it's going to be a while before the boomers start dying en masse; life expectancy for an 80-year-old (the oldest boomers as of 2026) is ~9 years, and for a 62 (youngest boomers) year old, 20 years. So yes, house prices will have to fall (barring a massive increase in immigration, which is definitely possible in that time frame if President AOC opens the floodgates)
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I heard this on the Odd Lots podcast and the host essentially says: "Everyone wants the real estate market to be low and cheap when they can afford it, then never low and cheap again, always increasing in price until the end of their lives". I think there are plenty of people like that now, hoping for some 2008-style crash where they can "deploy dry powder". Most people have wishful thinking on how they will successfully time the market twice (first time is not getting in the market before the crash; second is getting in the market at or right after it hits bottom). If we talk to New Yorkers, many can certainly tells you some hindsight-stories about Williamsburg in the 00s, or just anywhere in the city in general in the 80s, but that's the point, regret is powerful fuel for memories. If the tides actually goes out, companies are doing layoffs, banks are failing, societal services shutting down, buying a home would not seem like a good idea. And real estate is special because of how local it is, in case of a collapse, maybe you get 80s New York, or maybe you get 50s Detroit. Not to mention, others who are more well versed have pointed out that structurally things can be even worse and that even more can still be squeezed out of all of us. Personally, I don't bank on house prices being low over the long term, and that's even before talking about the cost of home ownership. If I can maintain and not have to liquidate my little parcel of the pale blue dot, I think that's enough to be considered as an astounding financial success.
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This is obviously false simply by glancing at the alternative.
Person A: No income but has a million dollar house
Person B: No income, and also no house.
Person A is a million dollars of value richer. If people B want a home too they have to give the people A a million (or build their own, which is becoming increasingly not allowed).
Nothing here is negated because A bought in early or because A wants their current situation of having a home instead of B's situation. They still have a million more dollars of value.
The value isn't increasing in the same way as other assets. He compares it to a painting:
Whereas, if you have a house increase in value, you can't sell it for that full value and pocket the proceeds. You need to live somewhere:
The fact that a person who doesn't own a house is in an even worse position does not negate that home inflation shouldn't really be considered the same as other assets.
Don't compare it from No home to Has home. Compare between a world where homes inflated 10x to one where homes only inflated 2x. Which world has generated more "wealth?"
If a painting goes from $1,000 to $1,000,000 at the same time general inflation goes up by a factor of 1000, you have gained nothing. If shelter inflation goes up more than general inflation, then if you own a home which goes up only by the value of shelter inflation, you have in fact gained (though not by as much as if your home went up and general shelter did not). It is true that to realize these gains you need to actually spend something, but that's just a matter of not being able to have your cake and eat it too -- if you want to realize the gain from the painting you won't have it after you sell it either.
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