Editor’s Note: A version of this story appeared in the CNN Business newsletter ‘Nachtkapje’. Sign up for free to get it in your inbox, here.
Just over a decade ago, the dominant housing market narrative was that millennials just weren’t buying. They were either too cheap, lazy, or itinerant to commit to something as heavy as a mortgage.
Cut to 2020 and that story was turned upside down. It wasn’t that millennials didn’t want suburban homes, they just couldn’t afford them. But when the pandemic hit and demand for real estate exploded, people in their thirties were all the rage — finally washed away after years of slogging with the jobs left to them in the wake of the Great Recession, and excited for many. to escape to the wide-open spaces of suburban life.
(It also didn’t hurt that dizzying stock gains meant baby boomer parents with large investment portfolios were happy to pass on some of those gains to their dear Millennial kids.)
As the housing boom begins to crumble in 2020, those who have managed to close a home in the throes of competition fueled by the lowest mortgage interest rates should consider themselves extremely lucky.
Here’s the deal: On Thursday, a new report showed that first-time buyers made up just 26% of all home buyers in the year ending June — an all-time low in the four decades that the National Association of Realtors has conducted its survey.
In comparison, the share of new buyers in the past decade has been between 30% and 40%. In 2009, in the midst of the Great Recession, it was no less than 50%.
Even more bad news for the younger millennial and Generation Zers hoping to buy their first home: The typical age of a first-time homebuyer is now a record 36 years, compared to 33 last year.
It’s not hard to see why: new buyers have less money saved and don’t have the equity that repeat buyers have.
“They need to save while paying more for rent, as well as student debt, childcare, and other expenses,” said Jessica Lautz, NAR’s vice president of demographics and behavioral insights. “And this year we had to deal with rising house prices, while mortgage rates also rose.”
Oh yeah, one more thing: In addition to rising mortgage rates, home prices also skyrocketed, reaching a median of $413,800 in June. (Imagine entering your starter home at 400 grand!)
All of this also drives up rents as potential buyers choose to (hopefully) keep saving for a down payment.
MY TWO CENT
Casing is broken. I’m not claiming to have a panacea, but it’s clear that inventory restrictions and outdated destination restrictions are a big part of the problem.
“Policies that regulate land use and housing production make it extremely difficult to add more housing in desirable locations,” writes Jenny Schuetz, urban economist at the Brookings Institution.
The United States, she argues, has not built enough homes and continues to build too many homes in the wrong places.
Instead of rebuilding in existing neighbourhoods, the housing supply has been expanded by “extensive single-family homes on the outskirts of the city”. That puts more people and homes in environmentally sensitive areas, such as areas prone to wildfires in the West.
With affordability reaching crisis levels, now is a good time for federal and local governments to rethink the way we shape the American Dream. But that will only happen if those who benefit—millennials and Generation Z—are better represented in elected offices. As Schuetz argues, the upper middle class Boomers in power now are understandably reluctant to change the system that got them where they are.
Seventy-five basis points: all the cool central banks do it.
Shortly after the Fed’s fourth consecutive 0.75 percentage point rate hike, the Bank of England followed suit on Thursday, raising its own key interest rate by the same amount — the largest rise in 33 years. The European Central Bank did the same last week.
(Side note: “Base points” are how central bankers talk about interest rate movements, which usually happen in small increments. One basis point = one-tenth of a percentage point.)
Tomorrow, when the Bureau of Labor Statistics releases its October jobs report, it will be the economy’s last major read before the midterm elections — and will close out a week of new data indicating that the red-hot job market is showing only tentative signs of cooling.
See here: The US economy is expected to add 200,000 jobs last month, down from 263,000 in September, but well above the pre-pandemic average. The unemployment rate is expected to rise slightly from 3.5% to 3.6% – still close to a half-century low.
But — there’s always a but — that’s not good news, according to the Fed. And it could be very bad news for Democrats next week.
The Fed’s most aggressive monetary tightening in modern history – as mortgage rates climbed above 7% for the first time in 20 years, curbed corporate growth and curtailed household spending – has barely dented the labor market.
In normal times, that’s the kind of news worth celebrating. But in the up-is-down economy of 2022, it’s cause for concern, as it suggests the economy is overheating. That’s partly why the Fed announced its fourth consecutive three-quarter-point increase, the latest in a series of aggressive moves unimaginable just a few months ago.
Another strong data point on jobs will only reassure the Fed that the labor market can withstand more rate hikes.
The Fed would absolutely love it if everyone kept their jobs and just see some “softening” in the job market — say, a slowdown in wage growth or a drop in job openings.
But realistically, when the Fed raises interest rates, it will (eventually) cause employment to fall.
Analysts across the board say the likelihood of a recession is high, if not guaranteed. But the Fed is betting that the pain of a recession (and associated job losses) is preferable to the pain of runaway prices in the long run.
Unfortunately for Democrats trying to stay in power next week, the pain of inflation seems to outweigh any positive sentiment about job security. Three quarters of likely voters already feel the country is in recession, according to a new CNN poll.