America’s housing dream is shattered

Cut to 2020 and that narrative has been turned upside down. It’s not that Millennials didn’t want homes in the suburbs, they just couldn’t afford them. But when the pandemic hit and the demand for real estate exploded, the frenzy was driven by people in their 30s — finally emptied out after years of working the jobs left behind by the Great Recession and, for many, eager to escape in the wide spaces of suburban life.

(It also didn’t hurt that skyrocketing stocks meant Baby Boomer parents with big investment portfolios were happy to pass some of those gains on to their favorite millennial kids.)

As the 2020 housing boom begins to falter, those who have been able to close on a home in the crushing competition fueled by low mortgage rates should consider themselves extremely lucky.

Here’s the deal: On Thursday, a new report showed that first-time buyers made up just 26 percent of all home buyers in the year ending in June, an all-time low in the four decades that the National Association of Realtors has been conducting its survey.

By historical comparison, the proportion of first-time buyers over the past decade has been between 30% and 40%. In 2009, in the middle of the Great Recession, it reached 50%.

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 a record 36, up from 33 last year.

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

“They need to save while paying more for rent as well as student debt, child care and other expenses,” said Jessica Lautz, NAR’s vice president of demographics and behavioral insights. “And this year we’ve faced rising house prices while mortgage rates are also rising.”

Oh yeah, one more thing: In addition to rising mortgage rates, home prices also rose, with the median hitting a peak of $413,800 in June. (Imagine your starter home costing 400K!)

All of this also raises rental prices as prospective buyers choose to keep saving (hopefully) for a down payment.

MY TWO CENTS

The hull is broken. I don’t claim to have a silver bullet, but it’s clear that inventory constraints and outdated zoning restrictions are a big part of the problem.

“Policies that regulate 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.

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

Instead of rebuilding within existing neighborhoods, the housing supply expanded through “sprawling single-family subdivisions on the city’s fringes.” This puts more people and homes in environmentally vulnerable areas, such as the wildfire-prone regions of the West.

With affordability reaching crisis levels, now is a good time for federal and local governments to rethink how we create the American Dream. But that will only happen if those who stand to benefit – Millennials and Gen Z – are better represented in elected office. As Schütz argues, the upper-middle-class boomers in power now are understandably unwilling to change the system that got them where they are.

NUMBER OF THE DAY: 75

Seventy-five basis points: All the cool central banks do it.

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

(Side note: “Basis points” is how central bankers talk about interest rate moves, which usually happen in small increments. One basis point = one-tenth of a percentage point.)

JOBS EVE

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 signaling that the heated labor market is showing only tentative 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 near a half-century low.

But – there’s always a but – this, according to the Fed, is not great news. And that could be very bad news for Democrats next week.

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

In normal times, this is news worth celebrating. But in the up-and-down economy of 2022, this is cause for concern because it suggests the economy is overheating. That’s partly why the Federal Reserve announced its fourth straight hike of three-quarters of a point, the latest in a series of aggressive moves that would have been unthinkable just a few months ago.

Another strong point of jobs data 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 just see some “softening” in the labor market — a slowdown in wage growth, say, or a reduction in job openings.

But realistically, when the Fed raises interest rates, it (possibly) reduces employment.

Analysts around the world say the chances of a recession are high, if not guaranteed. But the Fed is betting that the pain of a recession (and the job losses that will accompany it) is preferable in the long run to the pain of price spikes.

Unfortunately for Democrats trying to hold on to power next week, the pain of inflation appears to be outweighing any positive sentiment about job security. According to a new CNN poll, three-quarters of likely voters now feel like the country is in recession.

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