As older homebuyers cash out of their appreciated homes, many with mortgages fully paid off, as empty-nesters seek to downsize, they are converging on smaller homes that have often been the traditional entry level or slighter more bailiwick of first or second-time homebuyers. But there’s a big difference: older buyers have cash and have no need to qualify for a mortgage… younger buyers face that lending process with mortgage rates around 7%... and threatening to rise even higher after the next Fed rate hike. Those higher mortgage rates literally have no impact on someone who does not need to borrow to buy a home, but it could be the lead straw that crushes the camel’s back of a younger homebuyer.
It's bad enough that that sensitive first-time-buyer affordability index has fallen below where it has been in decades, but even with house prices finally moderating, with mounting mortgage rates, the situation is still particularly bad for entry-level buyers. Writing for the November 12th New York Times, Ronda Kaysen explains: “For most younger Americans, the entree to homeownership, a rite of passage for many adults, has been blocked by forces beyond their control. They have been competing in a market unlike any other, one defined by the largest run-up on home prices in modern history blunted only by the steepest climb in home mortgage rates in decades. As first-time buyers scramble to cobble together money for down payments and closing costs, they are competing in a market with an anemic inventory against investors and repeat home buyers flush with cash.
“First-time buyers account for the smallest share of the market in the 41 years that the National Association of Realtors has tracked such data. In the year from July 2021 to June 2022, first-time buyers accounted for just 26 percent of home buyers. Normally, they account for around 40 percent of the market. They were replaced by repeat buyers who were older, wealthier and whiter than they had been in decades, according to a recent survey by the trade association.
“The share of white buyers jumped to 88 percent during the survey year, representing the largest share of white buyers since 1997. The share of Black buyers fell to 3 percent from 6 percent, and Asian/Pacific Islander buyers fell to 2 percent from 6 percent from the previous survey year. The median age for all buyers was 53 years old, the oldest they’ve been since 1981, when the association first conducted its survey.
“The more years a person spends renting, the fewer years they have to build equity in a home and eventually pass that equity along to the next generation. A renter is also forever at the mercy of the mercurial rental market, with little control over what their costs will be from one year to the next.” Catch-22.
Unable to buy that “stake in America,” younger buyers seem to be disenfranchised from the get-go. They know that they will bear the biggest burden from climate change. They are aware of the mounting pressures to cut Social Security and Medicare (most in Y and Z generations believe, with some justification, that these programs with be defunded). They live in a nation that has polarized to the point of internal violence. Frustration, inflation and anxiety about the future define this constituency. And when they go into the housing marketplace to find that little American dream, they face being outbid by an older, cash-in-hand buyer or a corporate buyer feeding its rental fodder inventory. And yes, as a result of this pressure, more people are renting… and rental rates are soaring as well. In Glendale, California, rents rose over 30% this year!!!
Professionals unable to find a home to buy and facing a contracted rental market? A new kind of “homelessness”? And for those at the bottom, squeezed by a Federal Reserve Board that actually seeks to increase unemployment, knock-knock-knocking at recession’s door, this conversation about homelessness is more about a nation that just does not care. The middle class, once quite comfortable in stable economy, are facing their own shocks… and those at the bottom are more an inconvenience (NIMBY-style) than a human concern that might have been stronger in better times.
Kaysen tells us how frustrated younger earners are today: “Rising interest rates threw cold water on those [trying buying a first home] strategies, but even as the lines outside the open houses evaporate, the prices haven’t fallen enough to lessen the pain of the higher rates. About 54 percent of American renters don’t believe they will ever be able to afford to buy a home, according to a Credit Karma survey from October.
“‘There is a double whammy right now, it’s not just the interest rates, it’s a broader macro economy,’ said Colleen McCreary, chief people officer and a consumer advocate at Credit Karma. ‘It’s this idea that economically things are not stable and I don’t know when that stability is coming back.’
“Unsuccessful buyers are left grappling with the consequences, from the small disappointments, like wondering if you’ve wasted a year of Sundays to fruitless open houses to the existential ones, like delaying when or if you have children until you know where you’ll be living. In correspondences with The New York Times, dozens of buyers expressed a profound sense of frustration about lives on hold. They feel unmoored and uncertain, stuck waiting for the next stage in life to start.” Look at recent elections. Look at the anger and frustration. We seem to be looking to blame people. To find out why? Are we being replaced? Who’s able to live the American dream “if not me”? And if that isn’t political tinderbox waiting to explode…
I’m Peter Dekom, and this uncomfortable feeling that is roiling through America is not because we are following extreme political vectors… these times are in fact unstable and unsettling… and the symptoms are all around us and multiplying.
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