America’s housing dream is broken

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A little over a decade ago, the biggest story about the housing market was that Millennials weren’t buying. They were too cheap, lazy, or too well-traveled to commit to something as heavy as a mortgage.

Cut to 2020 and that story has been turned on its head. It’s not that Millennials didn’t want houses in the suburbs, they just couldn’t afford them. But when the pandemic hit and demand for property exploded, it was people in their 30s who fueled the frenzy – finally waking up after years of slipping away at whatever jobs were left to them when the Great Recession hit , and, for many, a desire to escape to the wide open spaces of suburban life.

(It also didn’t hurt that the big stock boom meant that Baby Boomer parents with large investment portfolios were willing to pass some of those gains on to their adoring Millennial kids.)

As that 2020 housing boom winds down, those who managed to close on a home should count themselves lucky as they beat the competition due to rock-bottom mortgage rates.

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 in June – the lowest level in the four decades the National Association of Realtors has been surveying.

As a historical comparison, the share of first-time buyers over the past decade has been between 30% and 40%. In 2009, in the middle of the great recession, it was as high as 50%.

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More bad news for younger Millennials and Gen Zers hoping to buy their first home: The typical age of a first-time home buyer is now 36, up from 33 last year.

It’s not hard to see why: First-time buyers have less money saved up and repeat buyers don’t have the equity.

“They’re going to have to save while paying more rent, as well as student debt, child care and other expenses,” said Jessica Lautz, NAR’s vice president of demographics and behavioral insights. “And house prices have been rising this year and mortgage rates have been climbing as well.”

Yes, one more thing: In addition to rising mortgage rates, home prices have also risen, with the median peaking at $413,800 in June. (Imagine your starter home clocking in at 400 grand!)

All of that is also putting upward pressure on rental prices, as potential buyers choose to continue saving (hopefully) for a down payment.

MY TWO HUNDRED

Housing is broken. I don’t purport to have a silver bullet, but inventory restrictions and outdated zoning restrictions are clearly a big part of the problem.

“Policies governing land use and housing production make it extremely difficult to add more homes in desirable locations,” wrote Jenny Schuetz, an urban economist at the Brookings Institution.

She argues that the United States has failed to build enough homes, and continues to build too many homes in the wrong places.

Rather than rebuilding within existing neighborhoods, housing supply has increased through “sprawling single-family subdivisions at urban fringes.” That’s putting more people and homes in environmentally fragile areas, such as regions in the West that are prone to wildfires.

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As affordability reaches crisis levels, now is a good time for federal and local governments to rethink the way we frame the American Dream. But that will only happen if those who will benefit – Millennials and Gen Z – are better represented in elected office. As Schuetz argues, the upper-middle-class Boomers now in power are understandably reluctant to change the system that got them where they are.

Seventy-five basis points: All the great central banks are doing it.

On the heels of the Fed’s fourth straight 0.75 percentage point hike, the Bank of England followed suit on Thursday, raising its own key interest rate by the same amount – the biggest increase in 33 years. The European Central Bank did the same last week.

(Side note: “Basis points” is how central bankers talk about rate movements, which usually happen in tiny 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 last major reading on the economy before the midterm elections — and it will cap a week of new data that suggests the market is not white-hot labor only showing temporary signs. of cooling.

See here: The US economy is expected to have added 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, to 3.6% from 3.5% — still close to a half-century low.

But – there’s always a but – that, in the Fed’s view, is not great news. And it could be bad news for Democrats next week.

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The Fed’s most aggressive monetary tightening in modern history – raising mortgage rates above 7% for the first time in 20 years, slowing business growth and denting household spending – barely made the labor market.

In normal times, that’s the kind of news worth celebrating. But in the upgraded economy of 2022, it is cause for concern, as it suggests that the economy is overheating. That’s partly why the Fed announced its fourth point hike in just three quarters, the latest in a series of aggressive moves that would have been unthinkable just a few months ago.

Another strong jobs data point will only reassure the Fed that the labor market can withstand more rate hikes.

The Fed would love for everyone to keep their jobs and see some “movement” in the labor market – a slowdown in wage growth, say, or a drag on job openings.

But realistically, when the Fed raises rates, employment (eventually) goes down.

Analysts across the board say the chances of a recession are high, if not guaranteed. But the Fed is promising that, in the long term, the pain of a recession (and the job losses that would accompany it) is better than the pain of runaway prices.

Unfortunately for Democrats trying to hold on to power next week, the pain of inflation seems to be more important than any positive outlook about job security. According to a new CNN poll, three-quarters of likely voters already feel the country is in recession.

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