When it comes to real estate, there are some financial scenarios that are ingrained in our culture.
A home is your biggest investment.
Renting is throwing away your money to pay someone else’s mortgage.
Housing prices are increasing all the time.
When you retire, it’s time to downsize and move to the beach or golf course.
Basic rules are meant to be broken.
Here’s a new story Wall StreetJournal:
Here are some quotes from the article:
This practice is even more common among wealthy people. This generation’s considerable wealth makes growth possible. Baby boomers and older have approximately $110 trillion in total wealth; This is much more than young Americans. Many purchased homes and stocks decades ago and benefited from the appreciation of those assets.
This year, eight clients of Merrill Lynch financial advisor April Tardiff retired. Each one grew. Only one customer has downsized in the last five years.
“The historic retirement game of selling your home and buying a smaller home is not happening,” Tardiff said.
“We’ll make me smaller when they plant me six feet underground,” said Victor, 64.
Baby Boomers are the richest generation in history. Many have paid off their homes and can afford to buy them with cash. That’s why 42% of current homebuyers are Boomers.
Don’t they want to shrink? They don’t have to!
It’s their choice.
However, this situation makes it difficult for young people who have families and want to put down roots.
Kyla Scanlon wrote about it: New York Times:
Since 2010, the real estate wealth of Americans age 55 and older has increased by nearly $20 trillion. Americans under 40 added $3.5 trillion. Two out of every three dollars in housing wealth added by America since then are now held by Americans 55 and older. Empty nesters own about 28 percent of large homes among U.S. millennials, while children own about 16 percent.
So older people are living in their bigger homes longer and buying more homes in retirement. And housing has become unaffordable for many young people.
This may begin to challenge some long-held beliefs about housing in this country.
Pew Research There is research showing that only a quarter of adults aged 18-39 think housing is a very good investment:
This is much less than people in the 60+ age group.
One of the reasons Stock holdings of people under 40 increased The reason for this situation in the 2020s is that housing is out of reach for many young households.
There is no mystery as to why this is the case:
It would be great if we decided Build more houses in this country. It will be a solution to many problems, especially of young people.
For whatever reason, this is not a priority for our policymakers.
There is a high probability that millions of young people who would otherwise buy a home will not do so because it does not make sense for their financial situation.
Alison Schrager wrote a piece for: Bloomberg About the housing market and stock market from an investment perspective:
The median home price in Nantucket, Massachusetts is approximately $4 million. In 1995 it was only $500,000. This looks like a dramatic increase in one of the hottest and least accessible real estate markets in the country. Even more striking is the stock market: If you had invested $500,000 in the S&P 500 Index in 1995, you would have more than $8.2 million today, and even more if you reinvested the dividends you earned.
As a homeowner who spent money on a new washer and dryer, a mole problem, a new garage door, an exterior pressure washing, and an interior vent cleaning in the last month alone, I can confirm that housing returns are probably lower than most people assume when all costs are included.
Clearly, there is a psychic income component to homeownership. It gives you an emotional return that your stock portfolio can never provide.
But I don’t think we thought about the downstream effects of this.
What does it mean for the stock market?
Will young people become richer because expensive housing forces them into the loving arms of the stock market?
Will they remain unhappy even with more money?
I think we will test many of the strong beliefs about homeownership in the coming years.
Further Reading:
Rich Old People
