I don’t
mean to turn this into an economics 101 lecture, but indulge me for a
minute. How much did a gallon of gas
cost in 1978 (at the time of Jimmy Carter’s oil embargo)? That
would be 62 cents. Today, anywhere
from $3.50 to $4.00 depending on where you are in the country…can we go back to
1978??? Obviously, as the government
prints more money its value becomes less.
As population grows, demand increases for certain commodities. As the currency supply increases so does
inflation. All of these factor into why
prices for goods and services naturally tend to increase over time. Salaries and wages naturally increase over
time to account for these increases in basic expenses (cost of living adjustments
or COLAs). Businesses ordinarily can
afford these wage increases due to increasing costs passed onto consumers. Combine that with businesses increasing their
prices to respond to the higher money supply, not to mention shrewd marketing, and
business should not be hurt in the long term.
Everybody wins.
Housing and
real estate, like any other good that is bought and sold, has generally
followed this pattern. In fact, housing
historically has virtually GUARANTEED a safe return on investment from the time
the house is purchased. It was almost a
certainty that a homeowner would sell their house for more than what they paid
for it.
We can have
a debate about what caused housing prices to collapse. Most attribute it to the availability of
cheap or interest free home loans that “ballooned” after a certain time
(ARMs). When the balloon triggered, most
people could not afford the sudden increase (often blindsiding them), thus
forcing them to default on the loans and banks to foreclose the property. We still see lots of this now. The result is that banks own what amount to
hundreds of dead assets that are just collecting dust, instead of
interest. To call this a buyer’s market
when it comes to home ownership is quite the understatement. It has been that way for quite some time.
Yet, the
20-something crowd who you would think would be jumping at the chance for
getting into real estate on the ground floor, are instead looking for the top
floor downtown with a view…and they renew the lease on a year to year
basis.
So why are
the Millennials avoiding home ownership like the plague? As discussed in my first essay, most of them
cannot afford it. One of the main
culprits is mounting student debt. Why
are student debts so high? It is a
combination of the dramatic increases in college education and the lack of
parental support.
I work in a
profession where helicopter parents are an occupational hazard. They are so afraid that their little darlings
will get hurt that they will do whatever it takes to make them happy (which
kind of leads into the subject of essay #4, but I will avoid the tangent for
now). When I was a child, and I would
play my mother in games, she would NEVER let me or my siblings win. It did not matter if we were playing Go Fish,
Monopoly, Scrabble, or even Tic Tac Toe.
I would always lose and it made me hoppin’ mad! However, as time wore on, and I learned the
different tricks of each game (not to mention more of a mastery of the English
language), the tide started to turn and as you might have guessed, I became the
winner and Mommy dearest started to rack up the L’s. The whole point was that I had experienced
FAILURE, and from that failure I learned how to win.
Now if I
can only translate that onto the softball field…I digress again.
What did that
last stream of consciousness have to do with home ownership? By the time Millennials end up out of
college, despite the helicopter parent syndrome, Mommy and Daddy might not have
footed the bill because THEY themselves could not afford it for whatever
reason, so the kids took out loans not really thinking at the time that
eventually they would have to be paid back…with interest. If they wanted a degree, they had no
choice. “No problem, right? I’ll just put in my 4 years, get my degree,
and I’ll have a job waiting for me.”
In the
words of the great philosophizer Scooby Doo, “RUH ROH!”
Not
everybody can get a job at Google. Not
everybody can get a job that pays a 6 figure salary upon graduation. Quite simply, college graduates just cannot
get the jobs that they truly want. They
cannot have them because A) they just are not there or B) employers cannot
afford to hire them. Why would a
business owner want to hire someone with a college degree and pay them more
when they can hire someone who only has a GED to do the same work and pay them
significantly less? Now this is not to
say that high school kids are stealing all the jobs, they are definitely not,
but cheap labor is the best way to keep down the costs of business. Skilled labor costs more. As a result, extremely well-qualified
Millenials are getting the shaft. So
when they do not get the job they want, they have to settle for something
else. They settle, they don’t make as
much money as they would have liked, and combine that with the already-present
student debt, there is no way for them to start building savings. Thus, a down payment is out of the
question. 401(k)? Forget about it. They need to make sure today’s bills get
paid.
At the
start of this piece, I noted that the pillar has shifted from Home Ownership to
Seeing the World. How do you make that
kind of a leap? How do you explain that
if kids are unable to afford anything but a 1-bedroom rental, how can they
afford to see the world? Before we
answer this question, let us take a look at how social media and instant
gratification play into this. Facebook
is notorious for promoting people’s “life events.” Often times they have several photo galleries
to that effect.
Now think about that. For somebody who is desperately trying to save for a home purchase (like I was), $3,000 can go a long way toward a down payment. Heck, that itself is probably an entire good faith deposit! However, from the Millennials’ perspective, you are just adding zeroes. A 3 bedroom townhouse costs $200,000 (give or take). A trip to the Eternal City costs only a tenth of that.
Now, of
course, if such a huge trip is well-planned, there is nothing that says you
cannot both own a home and travel.
Again, I do not want anyone to think that I am suggesting travel is a
bad idea, not in the slightest! I love traveling just as much as the next guy!
Source
Material:
No comments:
Post a Comment