Prices for starter homes are crowding out millennials | Hacker News Reader

Prices for starter homes are crowding out millennials

bloomberg.com

58 pointshuherto88 comments

I wish we were back in the days of 20% down. Seems like that would ground the market properly and make people more price sensitive, but I am not an economist. Turning the spigot off is harder than turning it on.

My beef is that easy credit isn't just driving up the price of housing it's driving up the size of housing which is connected to the price.

Indeed. Unfortunately, so much of the US economy rides on the housing market, you'll never see sane policies such as this enacted.

Is it really "easy credit"? My coworker just got done with getting a mortgage in San Mateo and it really seemed like a long drawn out processes with significant hurdles in terms of paperwork and documentation along with a requirement to put down $300k on a $1mil house.

I've been told by several people that it is significantly harder to get a mortgage today than in 2007/2008.

Perhaps he was making it harder than it really is but a mortgage is the hardest consumer credit to get.

It's a bit harder, but not significantly. (Source: both my parents are mortgage underwriters).

Getting a mortgage is not terribly difficult. Both child support and unemployment income can be used to obtain a mortgage. It really depends who is going to buy the loan. If its Fannie or Freddie (government sponsored entities), you have to meet their criteria if they're to buy the loan from you after you've made it. If you're a lending institution who is going to hold and service the loan (local banks or credit unions) you have a lot more leeway in what your criteria is.

You are right, it is definitely harder than it was during the mid 2000s free-for-all. People are conflating "cheaper" with "easier" in this case. Just because rates are suppressed doesn't mean anyone can get a loan.

I messed up using easy when I meant cheap.

But it's still easy enough to move the market. Cheap credit no one can get isn't going to have an impact.

When 2.5x median income doesn't buy the median house (or even close) there may be an issue. There isn't anything magical about the 2.5x number though, but IMO there is an upper limit on what is reasonable for people to spend on housing.

Your coworker is very close to the "jumbo mortgage" limit on mortgage size. If you exceed this amount, it is much more difficult to get a mortgage, even with pristine credit.

https://en.wikipedia.org/wiki/Jumbo_mortgage

20% down would mean even fewer millennials would be able to buy a house. I don't know anyone that has 40k sitting around in their bank accounts for a 20% down payment on 200k starter home.

I can save 40k, finding a home for only 200k is a laugh though.

Look in Maine. My mother is moving to a house that is roughly 180k on a decent chunk of land.

The issue is she works from home and someone tied to a corporate office in SF might not have the luxury of moving out east.

It's going to get even cheaper in the next year or so in Maine. Several major paper mills have just announced huge layoffs or have closed their doors. In Franklin County (approximately 35000 people, and about 1/16th of the state), the Verso mill laid off 300 employees, along with 100 logging contractors. Spider that out to the service, supply, and transport jobs that are going to go away as a result of this, and you are talking thousands of jobs that are going away, and there's no other industry to absorb those losses.

Real-estate is already dirt-cheap up there - a home that would sell for half a million in Boston or a million in SFO can be bought for less than 150k. It's going to crater even harder.

If anybody likes to ski and can work remotely, I've got a couple of houses for < $100,000 in the family that are a half-hour from Sugarloaf or Sunday River...

Minneapolis reporting in, 200k houses abound.

But hey fuck us flyover states-- what with our high paying jobs and affordable housing

Flyover states? Like... Virginia? http://www.businessinsider.com/which-states-are-flown-over-t...

Just kidding, I'm in flyover country as well (Colorado), though our real estate is much less affordable than yours, it sounds like.

I can get a $180K 3 bed, 2 bath home 15 minutes from Clearwater Beach in Florida, while making top dollar engineer salary for a remote company.

In my market (southern California), 20% down is more like $100k+.

FHA loans are still a thing, as are sub-$200K houses ($150k buys you a lot of house in Houston or Dallas)

20% down wouldn't just mean millenials wouldn't be able to buy houses, tons of people wouldn't be able to buy houses. Which would then lead prices to fall such that the market started to clear again.

Part of the reason housing prices went up so much in the last 20 years is falling interest rates, but another is the reduction in down payment.

Here is an article from 1990 that talks about conventional loans being 20% down: http://articles.latimes.com/1990-05-13/realestate/re-252_1_v...

It would be similar if government backed college loans suddenly vanished. The first year colleges would have very few students enroll and they'd have to figure out how to slash tuition by 50-90% (depending on how expensive they are) and the next year when people could afford to attend without spending buying-a-house amounts of money enrollment would get back towards normal.

It's not that 20% down would directly make housing more affordable, in the short run you're absolutely right that it would make it far more unaffordable.

But in the long run, as the parent said, it would ground the market in rational valuations instead of crazy ones.

This (x100). A lot of otherwise highly educated people I know just cannot understand this simple economic rule of supply/demand.

I had $60k sitting in my account for my first house. I just closed at $265k.

It's doable, but with a lead dev salary in NE Ohio. This is neither common nor really acceptable, but I worked hard to save my money.

I close on the 30th actually in the baltimore/dc metro area. 265k cost-of-house, 20% down. I saved and saved and saved. It was very hard.

Yep, this was effectively the culmination of saving as much as I could from graduation in dec 2011 to now. I'm pretty happy I managed to save this much, but it would not have been possible had I not been headhunted into what can only be called a dream job for a 28 year old from my area.

My wife only makes around $20k/year, maybe less, so this is almost entirely coming out of my pocket.

Heh, the 20% seems like the easy part. It's finding a home for $200k or <$1M in a good job market that's impossible.

The percentage is meaningless lowering it to say 0% while keeping the current market prices means that people still can't afford housing and will default on their loans.

Leave it at 20% heck raise it to 50% as long as you can have affordable housing.

If your first housing will cost 5 years of the median wage no one will have issues buying it, when a house costs 20 years, in which you need to pay rent, feed yourself, get married and have kids no one will every get into the market unless they get help form their parents or strike gold.

In Boston most sellers won't consider an offer if it doesn't have at least 20% down. I can tell you that it has not grounded the market at all mostly because the offers are so much over offer and the offers are so much over appraisals that anything less than 20% means the sale is likely to be blocked by the lender due to LTV issues.

My beef is 3 fold: NIMBY, weak public transport, REITs buying SFHs and small multis that historically have always been owner occupied.

I don't think what you said ("won;t consider an offer" applies to first-time buyers. With the median home price in Boston around $467K, a young family would need ~$100K (including tx costs) in _cash_ to buy.

I am a bit puzzled by where this down money would come from. Given college debt payments and stagnant wages. Also, saving money is not a practiced virtue in the US :-)

New Zealand has 20% and in some cases 30% equity requirements. It has made not a whit of difference.

20% down? A starter home in the bay area in a less than great neighborhood would run you about $500k 7 years ago. Drop 100k down on your home for the 20% buy in, thats a pretty big chunk of change that has already eliminated a huge swath of people.

If you have just been given a job offer to come work in the bay area you are likely looking for a home to move your family. Your signing bonus isn't going to be given as a lump sum, so you are stuck renting for $4,000/month. Not to mention that previously $500k starter home is now $800k (still a bad neighborhood with crap schools too)

Prices are just simply insane here. I don't know how anyone who hasn't been part of an IPO or an acquisition is going to be able to buy here.

I'm a software engineer and my wife is a nurse. We supposedly fit the demographic that's pricing people out of the area, but more and more we feel priced out ourselves.

$800k sounds low. You've still got to do the retrofit, or it's going to be a TIC, or it's going to have excessive insurance costs... even then you'll be outbid by 20-30% over asking price.

I've been sitting on a 20% deposit for years (at the equiv of SF property), but simply cannot afford to buy given all those costs.

The only way I can see it happening is to be married, with a double income.

Where I live the choice is renting for 1600/month or 'buying' a similar play for 300k + Appliances with a 800$/mo amenity fee AND property taxes AND Maintenance.

The only way buying works out is if there is some greater fool out there willing to play the sucker in a few years.

PS: Looks like 150$ of that amenity fee is a special assessment for the next 8 years. But, new condo's are notorious for artificially lowering condo fees for a few years and then bumping things when they need to fix something major.

I would be buying a home (or two) if 300k was the price tag.

Where I live (very large US city) buying actually works out better than renting IF you can afford a substantial down payment, which I imagine most millennials can not. My wife and I ('88-'89 born millennials) were able to and are saving money every month on the bottom line while living in a condo larger and nicer than our previous apartment.

Given the generally anemic savings and salaries/wages of most millennials, I think being able to qualify for a good mortgage is a major hurdle.

800 bucks a month or a year?

300k place with 20% down should be about $1500 a month ($1600 a month at 10%) for mortgage + property taxes.

Am I missing something?

$800/mo for an HOA fee is crazy. I recently purchased a condo for $330k at 20% down and I'm saving $200/mo over renting a smaller place.

Agreed thats why it should make sense to buy.

What about the opportunity cost of the $66,000 you put down? You could likely earn more than $200/mo pretty easily with $66,000 in cash to utilize. It is too simplistic to say you are saving $200/mo just because the monthly P&I payment is $200 less than a rent payment. That doesn't take into account what you could have done with the cash, property tax, maintenance, etc... Of course the big unknown is the future value of the property, which makes this very difficult to calculate accurately.

I've looked at this several times and renting typically comes out on top for me. I still decided to own though because I couldn't find what I wanted to rent and I care more about where I live than making sure it is the smartest purchase I can make.

"You could likely earn more than $200/mo pretty easily with $66,000 in cash to utilize"

How? That's more than a 3% return.

Long term the S&P 500 has an annualized return between 6 and 7%, after adjusting for inflation.

Good luck paying a $200/mo bill with an S&P indexed investment, though.

I can easily make 10-15% a year on my money investing, so that $66k downpayment actually means I would lose $6.6k-9.9k in annual income.

How do you make an easy 10 to 15%?

Stocks, bonds, currencies, property, alternative assets (i.e. acquire a profitable something, invest in passive income assets such as solar energy SPVs, music royalties, etc)

It still takes a time investment to achieve that. There's no free lunch.

> There's no free lunch.

Indeed. It's not at all easy to make 10%+ on a recurring basis.

If I could easily make 10-15% a year investing on top of my job, I'd do that. Maybe I'm just not as gifted as you.

Sorry, you're right. It's impossible to do - my bad. Ask any wealthy person (who enjoys finance) how they don't achieve those gains.

I don't know why you think I insinuated it was impossible. I'm not a wealthy person who enjoys finance so it's reasonable that I would not expect to see gains like that.

"Easily make 10-15% a year" .... until the market corrects and you lose 50%.

I said easily, I didn't say risk free. I also didn't say put everything in stocks. Stocks are extremely overpriced at the moment, and only a small of my portfolio are in them. Investing is a hobby I spend some time on each week.

I'm just pointing out that you should calculate the gain you could personally make from your capital and account for that in your decision.

Part of that equation is the time and knowledge required to invest that successfully, which not everyone has whether the time, the knowledge, or the time to acquire the knowledge.

Is the $800 amenity fee monthly? If not, you're probably better off buying (see http://nyti.ms/1han05C ; plug $300k in for the "price of home")

Yea per month, plugging in numbers I could including a lower property tax rate buying is a bad deal with that calculator even if you stay 15 years before moving and investment returns stay at the inflation rate.

This is a temporary consequence of the 2008-2009 housing crash.

Housing construction is a lagging indicator because of the regulatory and capital requirements to build a whole bunch of homes. So what we see right now is that demand is growing because the economy is growing again, but supply has not yet caught up. Result: fewer affordable houses.

In my neighborhood a new row house development was just breaking ground when the shit hit the fan in 2008, and of course they stopped. Well, they're building fast today, and selling every unit, but they're still not done. It just takes a while to build houses.

The only connection is Millenials is that they are the youngest generation currently looking to buy a home, so they are more price-sensitive than Gen Xers or Boomers.

I'm curious if we're going to see a glut in housing with so many Boomers entering retirement, wanting to downsize or needing to extract their equity to live on.

Also, economics for Millennials have been terrible. They're of course going to have a terrible time trying to get a down payment together as well as afford a reasonable mortgage payment. Even assuming they use a 3% down mortgage program, they then have no equity, and are locked to the property if they need to move/relocate unless they're willing to default on the property (which then keeps them out of buying again for 3 years).

EDIT: As someone who has seen deep into the real estate market, the game is rigged.

Hasn't happened in Sydney yet. I think we're still beating out SF in real estate prices.

It'll happen first in the US. We're not known for a big influx of foreign money except in SF, NY, and parts of Texas. I could see Chinese money picking Australian cities over second-tier US cities.

> the game is rigged

Could you elaborate? And what does it mean to the demographic described in the article?

Unless you've won the economic lottery or lucked out, its going to be very difficult to climb the housing ladder (starter home->family home->empty nest home) for Millennials.

People don't want to subsidize first time homebuyers, but they have no problem with the government subsidizing landlords (depreciation allowances, tax deductible mortgage interest). After so much distressed property ended up on the market after the housing collapse, private equity money swooped in to suck all the property up and charge "market" rent.

Millennials either need to adjust their expectations (get remote jobs, not be tied to areas with high cost of living that are going to extract a large part of their income from them) or fall into enough money to not only buy a property, but to weather any financial disasters they have so as to not lose their equity by losing their home. Hustling hard for years on end while being frugal is another option, but it is no guarantee of success.

That all makes perfect sense. For a moment I thought you were referring more to the NAR (market) than the tax regime/REIT side of things.

As a millenial with hope of some sort of real estate in my future, I've been thinking of buying an empty/distressed lot and rebuilding it, but I don't know how realistic that is.

> As a millenial with hope of some sort of real estate in my future, I've been thinking of buying an empty/distressed lot and rebuilding it, but I don't know how realistic that is.

Very reasonable. I've done this before. Let me know if you'd like to chat over email, and I'll get you my contact info.

I would certainly welcome any guidance. Email in my profile. Thanks!

I've been thinking about this, as well, and would be interested to see your thoughts on it, even if just a cut and paste of your advice to ak217. My email is brerlapn at fastmail.fm. Much appreciated...

> Hustling hard for years on end while being frugal is another option, but it is no guarantee of success.

I know more than a handful of people who have done this successfully, so I respectfully disagree.

I agree with the rest of your comment, just not the discounting hard work and being frugal part.

Forgive me, but your few anecdotes don't replace entire datasets showing how badly off Millennials are economically.

It's not a matter of working hard; sometimes there just aren't enough jobs to go around, or existing demand for someone to start a business to satisfy that demand.

I've known people who have saved for years, put down payments down, and then lost it all when their builder went bankrupt (and they had no recourse). Welcome back to square one.

Forgive me, but entitlement is a fun idea, not reality.

People wanting to start a business that isn't viable, bummer. Not enough jobs: I delivered papers, barbacked, worked a day job, figured it out. If they picked a bad builder, that sucks. Find your recourse. Be smart, be mature, figure it out.

Entitlement is a problem, working hard is not.

I'm sorry your opinion and reality are incompatible.

5 years after my dad (a Boomer) finished college, he faced unemployment and mortgage rates over 8%.

5 years after I (a Gen Xer) finished college, I faced unemployment and mortgage rates just under 6%.

Today the unemployment rate is 5.5% and the mortgage interest rate is under 4%.

While buying a first house is never an easy thing to do, there are plenty of indicators that it's not harder today than it was in the past.

We're already seeing local gluts in housing in cities that retiring Boomers are abandoning. For the price of my DC-area half duplex, I could buy a literal mansion in Cleveland or Detroit.

Overall, the population of the U.S. is still (slowly) increasing, so even when the Boomers move into assisted living facilities and/or pass away, there is not likely to be a national surplus.

It's even more depressing in the larger Canadian cities. In Greater Vancouver the average price is 1.47M, in Calgary (which is in the midst of a recession) the average price is still 457000 (and good luck finding a decent job), in the GTA it's 602000 and over a million in Toronto proper. The only affordable 'big' city is Montreal, and even smaller markets with few jobs are far more expensive than an equivalent sized market in the US.

I can't stand this term - "Starter Home". Not everyone, even those who can afford it, wants a McMansion.

Disregard my previous comment, I thought you were saying Starter Home == McMansion :)

Ah, after rereading it does come across like that. :)

I would like a small, maybe 2-bedroom house, in a cool neighborhood in a cool medium-sized city. That's my dream.

You basically described Baltimore. Just be careful, 2 blocks outside of that 'cool neighborhood' is a very 'un-cool' area.

For some people, bigger is always better. I like having a yard and not a cavernous home.

Real estate ownership for the young is obsolete.

Total deja vous its just like people lecturing my parents generation about why they don't get a job for life which would be easy if they really wanted one, ditto pension and gold watch.

Its not coming back any more likely than I'm buying a horse or a record player.

Really? Since millenials are going to be buying most of the houses over the next 15 years this suggests that housing starts will go up dramatically. Look at previous housing shortages, people returning from WWII, baby boomers entering the market, and now millenials. So demand goes up, clearly a lot of them are unserved by current prices, so developers figure out how to make houses they can afford to capture that demand.

A more interesting question is whether or not they want houses. It seems that with work mobility its simpler to just rent for a lot of folks. That drives interesting price inversions where it becomes cheaper to buy than to rent because people don't want to be "tied down" to a particular place.

I don't understand how present housing prices are possible. Don't markets require buyers? Look at prices in most cities vs. the average family income and it's beyond insane. Who is actually able to buy at these prices and where are they coming from?

IMHO it's much crazier than the "unicorn" phenomenon, since that can be explained by crazy term sheets and a lot of private investor cash sloshing around. I can't understand how present housing prices are even possible.

Popular city housing prices are global markets, not local markets. Turns out foreigners have lots of money to burn that locals can't match.

Things like http://sanfrancisco.cbslocal.com/2015/04/28/realtors-printin... and http://www.sfgate.com/business/networth/article/How-and-why-... and http://www.bloomberg.com/news/articles/2015-10-14/nyc-s-luxu... and http://www.nytimes.com/2015/02/12/nyregion/russia-time-warne... and http://www.nytimes.com/2015/02/08/nyregion/stream-of-foreign... and http://www.theguardian.com/business/2015/jul/12/chinas-rich-... etc

So basically we're paying feudal land dues to Russian oligarchs?

In my neighborhood all the houses going up for sale are being bought sight unseen, over asking price, by investors who replace the carpet, paint the walls, then rent them out.

Yes, I've seen this too, and in Orange County (SoCal) there are houses being bought like this and then nothing is done with them at all. They just sit there. I guess you can get away with it in a climate that never freezes so no issues with the pipes bursting, etc. The owners are foreign corporations, off-shore funds, etc., and a lot of Chinese.

I think the only solution is some kind of state or national tariff on foreign purchases of property or a tax on property owners that do not reside in the state. Of course then they'd incorporate shell corps but it would at least reduce the phenomenon a bit.

Do you think this is due tonthe low interest rates? People with money in the bank are not getting anything for it. Therefore it's better to buy a house at current low rates and make it back month by month?

What happens is that in a low volume housing market, prices are determined by the activity of relatively few sellers and (wealthy) buyers. Prices can easily go up and up in a rarefied market.

Pretty sure this is because many people, with the economic instability of the last five years, are deciding not to by the big McMansions anymore and don't want to take care of them... unfortunately, this means that those with more money that millennials also want the same "starter" houses. The real problem: too many builders built big-ass houses no one wants to pay for and take care of anymore.

I'm thirty four and nobody has ever suggested to me that I am supposed to buy a home. How on earth are we supposed to figure out what is going on in the world when everyone lies to us about society?

I'm very confused by your comment. Is there some context that I'm missing?

What does

> How on earth are we supposed to figure out what is going on in the world when everyone lies to us about society?

have to do with

> I'm thirty four and nobody has ever suggested to me that I am supposed to buy a home

???

I think they are snarkily trying to suggest that home ownership isn't something everyone must aspire to.

Guess we'll just have to think for ourselves

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