Portrait of a Banker/CLouet [PD] Wikimedia
Houses aren’t always great investments, but they are almost always a better way to spend your housing dollar than renting is. And right now, a generation of young people is missing that opportunity to build equity.
OK, not the whole generation. The real numbers: First-time home buyers normally make up about 40 percent of the housing market. Just at this lousy moment, however, they make up 33 percent. It’s the lowest fraction in decades.
I am weary of the term “perfect storm.” And while I have always been partial to the term “clusterf*ck,” it is, as my mother would say, uncouth. It’s time for a new natural disaster with poetic potential.
Idiom notwithstanding, a few tributaries pour their tears into the current swamp of mortgage woe.
1. Many banks acted deplorably; caused the housing bubble; and as a result, made abject groveling for credit harder than ever.
2. Many colleges forgot their mission; students, never a particularly pragmatic demographic, apparently chose colleges for their stance on organic kale; and student debt achieved bizarre and novel proportions.
2.1 (The soaring cost of health care has also been ratcheting up alllll the money gears, too, as more medical interventions are invented and each of us feels entitled to try each of them. But I’m trying to be succinct.)
3. And a seller’s market has been holding sway, pushing up prices and undermining humble offers based heavily on borrowed money. Cash is king.
So “kids today” have a hard time borrowing, both because they’re already dragging around debt, and because banks are on shorter leashes.
So these young people are renting. Which is currently an expensive way to go, given the low supply and the high demand for rental housing. And that makes matters worse: Expensive rents make it that much harder for people to save money for a down payment. Even FHA loans require 3.5 percent down. For a $200,000 “starter home” that’s $7000.
To escape the usurious private mortgage insurance and assorted other monstrosities, you have to put down 20 percent. Otherwise, about $225 of your monthly payment will fly into the ghastly black hole of an insurance policy to protect the lending institutions from their own deplorable behavior and crummy judgement.
Result: A chunk of the population is sidelined, both from the opportunity to direct their income toward equity, and from the civic awakening that comes with writing that first property-tax check.
It seems like Things Might Happen. Losing 20 percent of first-time home buyers seems like it could produce a few ripples. But only time will tell.