The latest from Dr. Housing Bubble

[eridani]

In honor of Crewleader--where has she been?

http://www.doctorhousingbubble.com/future-of-young-american-homebuyer-average-foreclosure-timeline-home-buying-trends-future-real-estate-projections/#more-5225

Young Americans have a challenging road ahead especially when it comes to buying in large metro areas. Since the Great Depression jarred the psyche of our economic fundamentals, each subsequent decade brought on a belief, a vision that the next decade would have it better. For most this meant a better road to economic prosperity and stability. There is a nostalgic reason that the “American Dream” many times includes a picket-white fence. After the end of World War II this is largely what occurred in the U.S. housing growth and the suburban dream expanded in what seemed to be an unlimited growth pattern to satisfy the collective unconscious desires. Yet this structural change came hand in hand with the baby boomer generation and households increasing their true earning potential. Yet younger Americans are facing a dramatically different landscape. They are confronted with tighter job prospects, a shaky stock market, and the growing expenses of college that saddle many with loans that at times appear to reach the levels of a mortgage. Make no mistake that this issue ripples across all age groups. The system for many years was built on trade-up buying. Yet many boomers are downsizing as they enter retirement and many young Americans are unable to pay top dollar for those homes. So what can we say about the future of the young American homebuyer?

<snip>

The future of the American housing market does depend largely on how well financially younger American families will do. Just because a retiring American selling his or her home would like a peak price for their property they are likely to find a market that is hungry for cheaper properties. The game has changed and those thinking that a miracle in housing is around the corner fail to understand the built in demographics of the system. It is also beneficial on a long-term basis to have affordable housing so a larger portion of discretionary income goes to creating jobs and moving the economy instead of having large portions of our society trading homes with one another and pretending that is economic growth.

[Warpy]

1. Back when people could count on working one job until they retired

buying a house with a 30 year mortgage in your 30s made sense. By the time you retired on a fixed income, your house was paid off or nearly paid off with inflation cutting the payments down, and your housing expenses plummeted. Retirees who owned their homes outright did much better than those who faced rising rents on a fixed income.

A lot of boomers didn't have this experience, having to change jobs and locations every few years and if they bought, resetting that 30 year payoff period every time they moved. Inflation made sure that their equity increases barely kept up with the down payment increases every time they bought. Now they're retiring with 20+ years left on the current mortgage, probably and underwater one, and they'll be house poor for the duration. They'd likely have been better off renting and saving, at least being able to put the thousands and thousands they'd spent on things like closing costs aside for retirement.

I'd say if you own your own business and your chance of moving is slight, paying off a house is a great way to prepare for retirement. If you are being moved frequently from job to job and town to town, rent, at least for the near future. If you are in an area with relatively cheap housing but rapidly rising rents, then ownership also makes a certain amount of sense, but such areas are few and far between these days.

What doesn't make sense is hopping from house to bigger house to enormous trophy house, tying yourself to more house than you need at a much higher monthly payment than you'll be able to manage when you retire.

[Tansy_Gold]

2. A 20-year mortgage is even better

As an early boomer (1948), I was raised on the notion of a 20-year mortgage, and that's all we ever had. The 30-year deal was a carrot dangled to snare people into taking on more debt for a longer period, NOT to give them more house for their money; dollar for dollar, they got less.

The smart thing is to buy only if you can buy something you'll build equity in quickly, because otherwise you're just renting anyway.