Unaffordable housing is nothing new. Even though news headlines are filled with declarations that younger generations will never be able to buy a house and pundits proclaim it’s “worse than it has ever been for first time buyers.”
I’m calling bullshit.
Yes, there was a buying frenzy for houses during the pandemic. It was fueled by extremely low interest rates, more people staying in their homes who wanted bigger places, the increase in work-from-home positions, and relocations. Some of it was also due to consumer being bored because they’re unable to spend their money on travel, vacations, cars, entertainment, dining out, etc. And then lastly, like every bubble, it was driven by panic buying when people thought, “If I don’t buy now, I’ll never be able to buy!”
All of those factors drove up the demand for houses. Prices skyrocketed and sellers made out. Good for them. Now that the Fed has raised interest rates, the pandemic is over, and the panic home shopping has petered out, houses are not selling so quickly – nor for as high of prices.
In desirable metro areas (DC, NYC, SF, Miami), wealthy enclaves (Aspen, West Palm Beach, Boise) and trending cities (Raleigh, Austin) housing costs have not dropped. People still want to move there. Sellers still want top prices and are willing to wait longer to get them.
Are homes in these places unaffordable? Not for people who have money saved from decades of work, are trading up from stater homes, or are the fortunate % of top earners.
But they are unaffordable for people who are just starting out in their careers who have no savings, brief employment history, and have been working for only a few years. They are also unaffordable for people working low pay jobs, people who have too high of debt/income and people who simply spend more than they make.
No kidding. It’s always been that way.
It was for me.
Back in the late 80’s and early ’90s when I was working my a$$ off in low paying hourly jobs. I made between $12K – $18K before taxes per year. There was no way I could afford to buy a house. We struggled to pay our monthly expenses. Even moving to a different rental was an incredible financial strain to come up with the first month/last month/security deposit plus the expenses associated with moving to a new place. We were buried in high interest in credit card debt and saw no way out. Ten years later, my wife and I both had been working in better paying positions for 5+ years and were able to buy our first home together.
My mother rented for 25 years in Pittsburgh before she finally became a nurse at 40 and was able to earn enough to buy a house. My sister worked for 10-15 years and pt herself through nursing school before she was able to buy her first home.
So I’m not surprised that many Gen-Y and Millenial renters can’t afford a home. First, they are looking in the wrong places. They want to buy a fully updated home in a desirable neighborhood. For most, this is simply unrealistic and always has been.
Housing isn’t unaffordable. However, the house you want, in the location you want, might be.
A few years ago, I read a book about the lower classes in London in the 1800s. Poor people couldn’t afford homes so they would rent a room (and in some cases, just a bed) in rundown boarding houses. It sounded awful.
They did so because they wanted to live in London – either for job opportunities, because it was better than being a peasant farm laborer, or because they were stuck in London within way out.
Was housing unaffordable then? Yes – for the people who wanted to live beyond their means.
Just like it is today.
My guess is these examples are common across highly desirable locations in the US and other developed countries.
There are many places that I have fantasized about moving to someday: Silicon Valley, Manhattan, Sydney, London, Northern California, Florence and Provence. One reason why my fantasies never become reality is because I can’t afford housing there.