I remember when I was in my late twenties the one thing I
wanted most was to own a home. My wife had always rented so she, while
understanding, was somewhat ambivalent. I persisted and just after we turned
thirty we bought our first home in… San Francisco. Yes, the small town on the
west coast where home price are now totally and completely nuts. In fact the
home we purchased in 1979 was recently sold for 11.66 times the price we
paid—yes, totally insanity. (In fact, no improvements have been made to the
house since we sold it in 1990, now that’s sad
on many levels.)
But we, like millions of other across the United States,
have weathered the ups and downs and the vagaries of the housing marketplace
and survived, and most have prospered. Much of our collective net worth is in
that humble assembly of stick and stucco. Our hopeful retirement fund is not in
some stack of bonds and stocks, but covered by a new composite roof. Such is
the state of the financial world in the United States. Much of the rest of the
world is confused by this American institution—considering that to pay rent is
the norm—not home ownership.
So why aren’t home sales bursting through the roof? There
are more potential buyers out there than at any time since the years following
World War II. They are wealthier (or have access to family capital), they find
that interest rates are incredible low (more than half what we paid in 1979),
and depending on the region, reasonably priced.
Some say it’s the amount of debt that the under thirty crowd
carries over from college. This may be true. Some say it’s the fear of what
they and their families have just gone through during the Great Recession; this
may also be true. And some say the culture has changed, ownership means being
tied down, beholding to a bank and to sticks and bricks. This may also be true.
My guess is it’s all of these and more.
There are changes in automobile ownership; reports are that
some in the younger generation are opting out of buying a car. They rent one
when they need one—other than that they take the bus or the train. For some
this is a smart move—we all certainly know the costs of car ownership. In fact
there is a growing trend of renting everything among the youth—thus reducing
the baggage that we older types carry around with us. They may be into
something here, but this also leads to not saving. And not saving leads to
having little left at the end of the month and the end of the year, and most
especially the start of retirement.
It is very hard to put your finger on the problem, as this Wall Street Journal article on renters pointed out yesterday. There it is stated
that the real reason for not purchasing is lack of money (down payment),
income, and debt. I’m shocked; in more than thirty years the reasons for not
buying a home are exactly the same reasons we were faced with. Much of what
happened in the Naughty Aughties when the government, banks, and builders
foolishly messed with market forces and over built, over lended, and then over
extended themselves and came very close to collapsing the economy, is now being
averted. Steady pacing of construction, more prudent lending, more stringent
controls for loan qualifications, and renting will do more to quite economic
fears than any government program.
Stay tuned . . . . . . . . .
