Today, we are exploring real estate for younger Americans. Homeownership is a lofty goal, and has long been considered a central tenet of the “American Dream.” Many people believe that America is in the midst of a real estate affordability crisis, suppressing the ability of younger Americans to realize their own American Dreams. If current trends continue for a very few years, half of all homes are projected to be owned by people ages 60 and up.
A common dilemma we encounter in our day jobs as Certified Financial Planners® involves young adults (both single and married) who are in full pursuit of their own American Dream. Unfortunately, the early years of adulting present a variety of competing demands on a meager starting salary. Food, clothing, and shelter are the three necessities unable to be put aside for later. Add in marriage, family, student loan repayment, starting a retirement savings plan, and suddenly purchasing a home seems nearly prohibitive. But is it?
Whether or not affordability presents an insurmountable obstacle is debatable. We believe that perception is based partially based on “recency bias,” meaning that last year’s 3% mortgages are fresh in people’s minds, but are no longer available. This notion belies decades of history, as America’s housing inventory and ownership base thrived before today’s home prices and mortgage interest rates. Baby Boomers in the 1980s were paying double-digit mortgage rates, yet managed to purchase and/or build homes. Interest rates will continue to change over time, and savvy homeowners will have the ability to refinance at lower rates when the time is right.
In the intense competition for young people’s cash, the use of homeownership dollars competes with rental dollars to cover the necessity of shelter. With the recent escalation of rents nationwide, a significant portion of household budgets is already deployed to the category of shelter. Elimination of rental dollar drain from budgets frees up significant cash for costs of ownership, with the promise of home equity. From a cash flow standpoint, this renders ownership more affordable than it may seem. The biggest hurdle for many young people is amassing a down payment. For some, parents are willing to help, and in fact, more parents than ever before are assisting a purchase in order to eliminate the “kids living at home” phenomenon.
Creative financing options, especially those with limited down payment requirements, are also becoming more available. Current credit restrictions have loosened significantly, bringing an increased number of young people back into the market. Housing inventory in post-COVID America is returning to normal. Young people who have not previously qualified as buyers should shop around, as conditions have changed significantly.
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