How Soaring Housing Costs Impoverish a Whole Generation and Maul the Real Economy

[marmar]

By Wolf Richter, a San Francisco based executive, entrepreneur, start up specialist, and author, with extensive international work experience. Originally published at Wolf Street.


How many years would it take first-time homebuyers, earning a median household income, to save enough money for the standard 20% down payment on a median home? Are you sitting down?

An impossibly long time in many cities, Lindsay David of LF Economics (and a contributor on WOLF STREET) found in his report on mortgage stress. He looked at 30 large US cities, using their local median incomes and median home prices. It assumed that young households could accomplish the tough feat of saving 5% of their income, year after year, through bouts of unemployment, illness, shopping sprees, family expansions, or extended vacations.

The results are stunning – if just a tad discouraging for first-time buyers.

In my beloved and crazy boom-and-bust town of San Francisco, where a median home (for example, a two-bedroom no-view apartment in a so-so neighborhood) costs $1 million, it would take – are you ready? – 37 effing years.

Given its higher median income, San Francisco is only in second place. The winner by a few months is another Bay Area city, San Jose. In San Diego, it would take 33 years. In Los Angeles, 32 years. First-time buyers might be retired before they scrape their theoretical down payment together. Theoretical, because in reality, too many things change, and they’re chasing after a moving target. ............................(more)

http://www.nakedcapitalism.com/2015/05/wolf-richter-how-soaring-housing-costs-impoverish-a-whole-generation-and-maul-the-real-economy.html

[PowerToThePeople]

1. I will never own a home

In my region, when I was a child a house could be purchased for about a years wages (gross). Today it is 4+ years wages to purchase the same home.

[1StrongBlackMan]

4. While homeownership miht be the "American Dream" ..

I'm afraid it may be a figment of a begone age, regardless of income ... a time when people were far less mobile Anecdotally, I know several high incomed couples that are not seeking to purchase a house (unless it's a vacation home) because it will tie the to a specific location.

So I'm not sure we should include rea estate purchase as the "real economy."

[PowerToThePeople]

5. "mobility" to me

is instability. If you are constantly relocating, which is not cheap, you do not ever achieve a stable environment. While this may be fine for a single or childless couple, it is not conducive to raising children.

[1StrongBlackMan]

6. Agreed. n/t

[we can do it]

2. Most people buy FHA 3.5% down, cheaper than rent in Ohio

[FLPanhandle]

3. Worst case scenario he uses

First, he picks 20% down payment as the benchmark and you can get a mortgage for far less than that down.

Second, he picks the most expensive places San Jose and San Fransisco with a $1 million dollar price tag.

How many first time buyers in this country are going after $1 million homes?

Take Tampa or Cincinnati: it's closer to 12 years for a 20% down payment, but if you look at what it takes to actually buy a home, that would drop to 3-5 years of saving.

Far different than "37 effing years"

[Hestia]

7. In reading the rest of the article, it has a chart with different cities around the countries

and the years it would take there using the 20% down. Yes, there are FHA and VA but you do have to pay mortgage insurance until you have paid equal to the 20% down payment.

[kimbutgar]

8. I got lucky in the 90's with a job working for a local investment bank boutique

Before the banks brought out local investment banks we had these thriving local companies who paid good wages and generous bonuses. I made enough in my bonuses to save for a down payment on my house in San Francisco. Plus they gave you money in the 401k. Instead of paying cash for a new bmw I saved the money. Best decision I ever made.

My parents lived with my Dad's father and saved for their down payment $ 2000 and brought their home in 1955 for $12,000. Now one would have to save a whole lot of money. The American Dream is no longer possible for many people, I feel bad that the security of a home for many families is only a dream. It really sucks.