Real Estate

A new normal for homeownership.

Newly remodelled home for a family to grow in.

Newly remodelled home for a family to grow in.

I recently read through an article in Yahoo Finance, which was originally written by the Associate Press, entitled, “Why Americans waiting longer than ever to buy first homes”. Of course the nerd in me thinks there should be an, “ARE” in the title somewhere so it reads either, “Why ARE Americans…” or “Why Americans ARE…”. I, of all people, should not be commenting on people’s grammar though, so I will focus on the content of the story itself.

Here is the article for your reading entertainment: Why americans waiting longer ever buy first homes

There are a couple items in the story to highlight that are interesting to me:

The typical first-timer now rents for six years before buying a home, up from 2.6 years in the early 1970s, according to a new analysis by the real estate data firm Zillow. The median first-time buyer is age 33 — in the upper range of the millennial generation, which roughly spans ages 18 to 34. A generation ago, the median first-timer was about three years younger.

The times have certainly changed since the 70’s, I am wondering if this point was due to a gradual discrepancy over 40 years, or if this is closer to the technology metamorphosis that took place in the last 20 years.

There are certainly other elements that can play a role, for example mobility, and job stability. Some people know that they are going to live a longer life, so the 25-35 year old time frame is the opportunity to be flexible and try different areas of the country/world before settling down with a specific career and/or family development. This would lead to people making short term commitments to living arrangements without signing a 30 year note.

Jobs have also become more short term, and “freelance” style than ever before since we have found ways to streamline manufacturing, and have been able to automate so many tasks, while improving on communication and technology. The new normal for work includes flexibility, and opportunity to service from a remote locations. Because of the ability to provide a service from a remote location, this makes the job itself more competitive and drives down the cost of service, suppressing the income potential.  This point would indicate that average hourly earnings has not kept pace with cost of living in this competitive environment.

Though it might not appear so at face value you, but these can be good things since it is appropriate for people to explore themselves, by exploring the world. People should be mobile in their 20’s and out of their comfort zone because that is where you learn the most about who you truly are.

And when young adults do sign the deed, their purchase price is now substantially more, relative to their income, than it was decades ago. First-time buyers are paying a median price of $140,238, nearly 2.6 times their income. In the early 1970s, the starter home was just 1.7 times income.

I believe that building permission and limitations have prevented ease of construction, limiting inventory while making it more expensive to build, especially with modern code. This would drive up costs due to of lack of inventory relative to demand, and building costs. Buildings are becoming more safer, and efficient than ever before because of new building requirements. For example, even though this point is before the 70’s, between 1890 and 1920 they used to use what is called, “knob and tube” wiring for electricity. It turned out to be very unsafe, and was a fire hazard. Another thing that was cheap to make was lead paint. They outlawed that in 1978, so the price for paint increase because it was now made with much safer chemicals.

Another element that drives up the purchase price to income multiple may be that more people in the household are contributing to the cost of living than before. Some examples may include colleagues living together and splitting the ownership, or paying a cost of living to an individual owner, or even both spouses working full time. I have heard many stories of the stay-at-home mom, or part timer, up until the 80’s and now it appears that both parents must work to support the family, and competitively cover the cost of living.

I tried my best to highlight some points, and add a perspective on some of the statistics mentioned in the story. I also didn’t want to bore the reader because I might be able to write a short story or even a novel on this topic. It is a very intriguing time that we are living in, and envision looking back 20 years from now, and saying, “yes, I remember what the norm used to be, and it was much different than it is now. These are some of the contributing factors, and there were people going through the change that didn’t even realize it.”

My expectation for the next 20-40 years is that there will be more of a consolidation of housing, to protect land/agriculture, while trying to use space safely and efficiently. We can build up, and occupy space that once was air, and that will not impact our food production. If we build out however, we will mitigate the amount of fertile land that is available to grow food. I personally like living on my own plot of land, but these changes we are going through are bound to change the normal living style/standards. The value to undeveloped land will continue to increase, which will also mean that single family homes will also become more expensive. Rumor has it, they aren’t making any more land…

We have a good problem, but it is still a problem.

I have to laugh, because I just brought this point up with some friends of mine, sure enough a few days later CNBC posts an article about it. The point I told my friends was that “We have a good problem, there is so much work right now that contractors can’t keep up with it. Those that have been searching for work are TOO busy. Of course, it is still a problem, because now people have to wait for the projects to finish up, and it interferes with their daily routine.” Sure enough here is the article the mentions the national trend that we feel on a local/regional level:


Take a moment to read it, and let me know what you think.



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