7 ms·

Doesn't surprise me, younger millenials won't have a home to sell and will thus have a hard time affording a home in an inflated market. Compounded with the fac

Doesn't surprise me, younger millenials won't have a home to sell and will thus have a hard time affording a home in an inflated market. Compounded with the fact that median wages haven't increased that much the last 30 years. Prices have to fall for that group to afford a home.

sokoloff 8y ago
> Compounded with the fact that median wages haven't increased that much the last 30 years. Median income has gone up by about 150% (to 2.5x) in nominal terms between 1986 and 2016. https://fred.stlouisfed.org/series/MEHOINUSA646N https://fred.stlouisfed.org/series/MEHOINUSA646N
- dmichulke 8y ago
  It increased a thousand fold in Venezuela and Zimbabwe - I'm guessing here but it should get the point across
- makmanalp 8y ago
  Why look at nominal though? Inflation adjusted makes a lot more sense to me, especially when we're talking about household income. https://fred.stlouisfed.org/series/MEHOINUSA672N https://fred.stlouisfed.org/series/MEHOINUSA672N The story here is quite different - only a 19% increase, and much more unstable over the years. Most of the increase happened before 2000. Almost no change since then.
  - sokoloff 8y ago
    Two reasons: 1. Every idiotic meme about how goods X, Y, and Z have more than doubled in price while [real] wages haven't. I'm torn between thinking the meme creators are completely clueless or epic trolls. 2. There is a substantial linkage between nominal wages and nominal inflation, especially for limited, competitively bid goods (like housing). Looking at median house prices https://fred.stlouisfed.org/series/CSUSHPINSA https://fred.stlouisfed.org/series/CSUSHPINSA , it looks like they went up slightly more than median wages (2.85x vs 2.5x in 30 years), which I think is likely more than explained by today's lower than historical norms interest rates (increasing affordability). https://www.macrotrends.net/2604/30-year-fixed-mortgage-rate-chart https://www.macrotrends.net/2604/30-year-fixed-mortgage-rate... Mortgage rates over 10% in 1988 and under 5% today means that 1988 houses were less affordable on 1988 wages than 2018 houses are on 2018 wages.
    - dmichulke 8y ago
      Mortgage rates in the US have (AFAIK) usually a variable interest rate. That means that it's sufficient for the lower income tiers (relative to the house value) to have a few months of high interest rates (in a time frame of 15-25 years) in order to lose the house. Buying at the current rates is risky, while the risk of rising rates in 1988 was much lower. Factoring that in should change your conclusion.
      - nostrademons 8y ago
        As of 2017, 90% of mortgages in the U.S. were 30-year fixed. 6% were 15-year fixed. Only 2% were ARMs. http://www.freddiemac.com/perspectives/sean_becketti/20170410_homebuyers_communities_fixed_mortgage.html http://www.freddiemac.com/perspectives/sean_becketti/2017041... People got burned bad by ARMs in the housing crash of 2009 and they still aren't willing to take the risk.
        sokoloff 8y ago
        Thanks for bringing data into the discussion! ("Yes and") There's also very little rate benefit to adjustable mortgages right now, so it's quite sensible to take a fixed rate mortgage. When I bought my first house (in 1996), I recall that fixed rate mortgages were several points higher than adjustable rate mortgages during their fixed portion. In cases like that, it made for an actual decision. With both fixed rates and ARMs having roughly the same initial rates, there's little reason to choose adjustable.
  - conception 8y ago
    I ran across an interesting proposal that one of the reasons for poor wage growth is health insurance costs - Health Care and Other Benefit Costs As nonwage benefits are beefed up by U.S. employers, such as expanded paid leave and performance-based bonuses, fewer dollars in their total rewards budgets may be available for salary increases. But health care benefit costs are a prime suspect. "The rise of health-care costs is the most important reason wages have not increased more for U.S. workers," Nobel economics laureate Edward C. Prescott and Lee E. Ohanian of the Center for the Advanced Study in Economic Efficiency at Arizona State University, wrote in the Wall Street Journal in 2018. "The extra compensation is swallowed up by health-insurance premiums." A new white paper provides evidence that "the rising values of fringe benefits, such as health insurance, may have offset potential wage gains for middle-income workers" despite falling unemployment. The authors, Jeff Larrimore of the Federal Reserve and David Splinter of the congressional Joint Committee on Taxation, contend that when factoring in the cost of health coverage, "total compensation may be higher than previously believed, also implying that employer-sponsored health insurance benefits may represent a larger share of employee compensation." Economics columnist Robert J. Samuelson wrote in the Washington Post: The problem is plain: We'd all like both cheaper health insurance and higher wages, but the way the health-care system is operating today, we might get neither. As insurance premiums get more expensive, inflation-adjusted ("real") wages will continue to stagnate or decline. https://www.shrm.org/resourcesandtools/hr-topics/compensation/pages/where-is-the-wage-growth.aspx https://www.shrm.org/resourcesandtools/hr-topics/compensatio...
iscrewyou 8y ago
I really feel like this is it. Debt was introduced to parents of millennials. But it took some time to become institutionalized. Now millennials are in debt right as they get out of college. No matter what college you leave, you can have debt if your parents didn’t pay for your tuition. On top of that, wages have been stagnant. Then there is the credit card debt that is very easy to accumulate is you aren’t careful with the money that you do have. This younger generation is too busy paying off their debt. Then they are expected to save 5 years worth of salary to pay for house down payment so they can get a mortgage for 30 years. It’s possible to make it happen but it requires a lot more effort than it did for our parents or grandparents.
- allthecybers 8y ago
  Even as a DINK millennial couple with a combined low six figure income a home purchase feels like a poor investment. Not only the down-payment of $100k+ but the property tax increases and then having to pay that mortgage for 30 years. Since we expect mobility and a certain level of future uncertainty it just doesn’t make sense for us and many more of our generation to tie ourselves to such and expensive geographic anchor.
  - gowld 8y ago
    You can rent out that investment if you move. Paying rent is also expensive where home prices are expensive.
    - Latteland 8y ago
      If you are lucky you can get money from renting. If you were unlucky and had a house in the rust belt and jobs disappeared then few people could buy or rent your house. So people can get trapped. At least you can expunge your mortgage debt with bankruptcy. Not being able to expunge education debt is what's holding our economy down.
      - sokoloff 8y ago
        Not being able to expunge education debt is what makes education lending possible. Otherwise, there’d be a line to file strategic bankruptcy after the last tuition payment was due...
wonderwonder 8y ago
Builders keep building homes, home prices keep going up. In order for people to buy the newly built homes, you need to keep adding people capable of affording the inflated housing prices to the market. As you stated, millennial's (and many others) cannot afford it due to stagnant wages and student loan debt. They also cant afford the insane rents in many cities so ~23% of them live at home with their parents. Eventually there are a ton of empty houses on the market without buyers, sellers are forced to lower their prices. People in upside down mortgages cannot sell as housing prices are lowered and foreclose, further dragging down the price. Market crashes. People with capital swoop in and buy up houses to rent out, driving up rent further as they can set the price. This collapse will be slightly quicker than the last as the market is not as propped up with sub prime style loans. If salaries don't keep up with inflation a crash is inevitable. Deck is stacked against people without a strong financial base (upper middle class parents) but hey, they can stay on their parents health insurance for longer now, so that's nice.

sokoloff 8y ago

> Compounded with the fact that median wages haven't increased that much the last 30 years. Median income has gone up by about 150% (to 2.5x) in nominal terms between 1986 and 2016. https://fred.stlouisfed.org/series/MEHOINUSA646N https://fred.stlouisfed.org/series/MEHOINUSA646N

dmichulke 8y ago
It increased a thousand fold in Venezuela and Zimbabwe - I'm guessing here but it should get the point across
makmanalp 8y ago
Why look at nominal though? Inflation adjusted makes a lot more sense to me, especially when we're talking about household income. https://fred.stlouisfed.org/series/MEHOINUSA672N https://fred.stlouisfed.org/series/MEHOINUSA672N The story here is quite different - only a 19% increase, and much more unstable over the years. Most of the increase happened before 2000. Almost no change since then.
- sokoloff 8y ago
  Two reasons: 1. Every idiotic meme about how goods X, Y, and Z have more than doubled in price while [real] wages haven't. I'm torn between thinking the meme creators are completely clueless or epic trolls. 2. There is a substantial linkage between nominal wages and nominal inflation, especially for limited, competitively bid goods (like housing). Looking at median house prices https://fred.stlouisfed.org/series/CSUSHPINSA https://fred.stlouisfed.org/series/CSUSHPINSA , it looks like they went up slightly more than median wages (2.85x vs 2.5x in 30 years), which I think is likely more than explained by today's lower than historical norms interest rates (increasing affordability). https://www.macrotrends.net/2604/30-year-fixed-mortgage-rate-chart https://www.macrotrends.net/2604/30-year-fixed-mortgage-rate... Mortgage rates over 10% in 1988 and under 5% today means that 1988 houses were less affordable on 1988 wages than 2018 houses are on 2018 wages.
  - dmichulke 8y ago
    Mortgage rates in the US have (AFAIK) usually a variable interest rate. That means that it's sufficient for the lower income tiers (relative to the house value) to have a few months of high interest rates (in a time frame of 15-25 years) in order to lose the house. Buying at the current rates is risky, while the risk of rising rates in 1988 was much lower. Factoring that in should change your conclusion.
    - nostrademons 8y ago
      As of 2017, 90% of mortgages in the U.S. were 30-year fixed. 6% were 15-year fixed. Only 2% were ARMs. http://www.freddiemac.com/perspectives/sean_becketti/20170410_homebuyers_communities_fixed_mortgage.html http://www.freddiemac.com/perspectives/sean_becketti/2017041... People got burned bad by ARMs in the housing crash of 2009 and they still aren't willing to take the risk.
      - sokoloff 8y ago
        Thanks for bringing data into the discussion! ("Yes and") There's also very little rate benefit to adjustable mortgages right now, so it's quite sensible to take a fixed rate mortgage. When I bought my first house (in 1996), I recall that fixed rate mortgages were several points higher than adjustable rate mortgages during their fixed portion. In cases like that, it made for an actual decision. With both fixed rates and ARMs having roughly the same initial rates, there's little reason to choose adjustable.
- conception 8y ago
  I ran across an interesting proposal that one of the reasons for poor wage growth is health insurance costs - Health Care and Other Benefit Costs As nonwage benefits are beefed up by U.S. employers, such as expanded paid leave and performance-based bonuses, fewer dollars in their total rewards budgets may be available for salary increases. But health care benefit costs are a prime suspect. "The rise of health-care costs is the most important reason wages have not increased more for U.S. workers," Nobel economics laureate Edward C. Prescott and Lee E. Ohanian of the Center for the Advanced Study in Economic Efficiency at Arizona State University, wrote in the Wall Street Journal in 2018. "The extra compensation is swallowed up by health-insurance premiums." A new white paper provides evidence that "the rising values of fringe benefits, such as health insurance, may have offset potential wage gains for middle-income workers" despite falling unemployment. The authors, Jeff Larrimore of the Federal Reserve and David Splinter of the congressional Joint Committee on Taxation, contend that when factoring in the cost of health coverage, "total compensation may be higher than previously believed, also implying that employer-sponsored health insurance benefits may represent a larger share of employee compensation." Economics columnist Robert J. Samuelson wrote in the Washington Post: The problem is plain: We'd all like both cheaper health insurance and higher wages, but the way the health-care system is operating today, we might get neither. As insurance premiums get more expensive, inflation-adjusted ("real") wages will continue to stagnate or decline. https://www.shrm.org/resourcesandtools/hr-topics/compensation/pages/where-is-the-wage-growth.aspx https://www.shrm.org/resourcesandtools/hr-topics/compensatio...

iscrewyou 8y ago

I really feel like this is it. Debt was introduced to parents of millennials. But it took some time to become institutionalized. Now millennials are in debt right as they get out of college. No matter what college you leave, you can have debt if your parents didn’t pay for your tuition. On top of that, wages have been stagnant. Then there is the credit card debt that is very easy to accumulate is you aren’t careful with the money that you do have. This younger generation is too busy paying off their debt. Then they are expected to save 5 years worth of salary to pay for house down payment so they can get a mortgage for 30 years. It’s possible to make it happen but it requires a lot more effort than it did for our parents or grandparents.

allthecybers 8y ago
Even as a DINK millennial couple with a combined low six figure income a home purchase feels like a poor investment. Not only the down-payment of $100k+ but the property tax increases and then having to pay that mortgage for 30 years. Since we expect mobility and a certain level of future uncertainty it just doesn’t make sense for us and many more of our generation to tie ourselves to such and expensive geographic anchor.
- gowld 8y ago
  You can rent out that investment if you move. Paying rent is also expensive where home prices are expensive.
  - Latteland 8y ago
    If you are lucky you can get money from renting. If you were unlucky and had a house in the rust belt and jobs disappeared then few people could buy or rent your house. So people can get trapped. At least you can expunge your mortgage debt with bankruptcy. Not being able to expunge education debt is what's holding our economy down.
    - sokoloff 8y ago
      Not being able to expunge education debt is what makes education lending possible. Otherwise, there’d be a line to file strategic bankruptcy after the last tuition payment was due...

wonderwonder 8y ago

Builders keep building homes, home prices keep going up. In order for people to buy the newly built homes, you need to keep adding people capable of affording the inflated housing prices to the market. As you stated, millennial's (and many others) cannot afford it due to stagnant wages and student loan debt. They also cant afford the insane rents in many cities so ~23% of them live at home with their parents. Eventually there are a ton of empty houses on the market without buyers, sellers are forced to lower their prices. People in upside down mortgages cannot sell as housing prices are lowered and foreclose, further dragging down the price. Market crashes. People with capital swoop in and buy up houses to rent out, driving up rent further as they can set the price. This collapse will be slightly quicker than the last as the market is not as propped up with sub prime style loans. If salaries don't keep up with inflation a crash is inevitable. Deck is stacked against people without a strong financial base (upper middle class parents) but hey, they can stay on their parents health insurance for longer now, so that's nice.