fewer young people than ever are going to be able to buy a house in their lifetime and at the same time homes are getting more expensive every year what but if nobody can afford to buy a house then how the [ __ ] do they keep getting more expensive so the idea of being able to save a 20 down payment uh is almost unimaginable yeah rent gets raised you know a thousand percent with no notice and a family home should be the Bedrock of your financial life it gives you somewhere to live while building up
equity in a place that you can one day call your own owning a home with a 30-year mortgage is cheaper out of pocket every month in most cities than renting so if you can buy your own home you will be richer now and richer in the future you already know this but if you're in the 75 of my audience that doesn't own a home it's probably because you can't afford one according to a report by Redfin only 21 of homes that went on sale in 2022 were considered affordable that's down from 60 percent of homes
that went on sale in 2021 that means in just one year two-thirds of all affordable housing became too expensive for the average American the team conducting the survey concluded that housing affordability is at its lowest point in history but what's the end game here if people can't afford a home then house prices can't go up anymore right wrong I don't want to make another one of those stupid finfluencer videos about how the housing market is going to crash in 3.5 days but there are three reasons why it could get a lot worse before it gets
better the first reason is that houses do not need to be affordable for you to buy one if you think that can't make sense there is an entire industry working to make it true you don't save money to buy a house you save money for a down payment the housing costs are completely out of line with wages wages have not kept up with house prices but a 20 down payment only grows at one-fifth the rate in absolute terms so people are still able to get into the market according to Zillow the average home sold in
America in 2020 traded for two hundred and thirty thousand dollars at the start of 2023 the average home price was three hundred and thirty thousand dollars a jump of one hundred thousand dollars in less than three years according to Forbes the average American makes a salary of fifty nine thousand dollars before tax after federal tax and FICA that leaves them with a take-home of forty nine thousand dollars if this average person saved a ridiculous seventy percent of their take-home pay to buy a house they would be just as far away from their goal after three
years because the price of the average house grew just as fast as their savings the average home earns as much as the average person but most people only save for a down payment so seventy percent becomes fourteen percent or seven percent if it's a dual income household or the other partner also earns the average salary that's still a major savings commitment when 57 percent of Americans can't afford a one thousand dollar payment without taking on debt fourteen percent of your take-home pay should be more manageable than seventy percent but remember this is only how much
you would need to save just to keep up with price increases this doesn't actually get you any closer to your goal of buying a home lenders and banks with a vested interest in real estate assets across the country know that it is still hard for most families who also need to pay for food rent and other Essentials that are outpacing wages so they have moved the goal posts report by the National Association of Realtors found that the average down payment for a first-time homebuyer was just seven percent and the average down payment for a repeat
purchaser that has had time to build equity in their previous home was only 17 percent if you only need to put a tiny deposit down house prices can increase to many multiples of your income before it becomes impossible to buy a house if you only need to save for a seven percent down payment then just a 10 savings rate over three years from an average wage would get you into an average house you would be more disciplined than the average American but it's not impossible with some sacrifice if that's still too hard for you then
Zillow recently announced that they would be trialing a one percent down payment loan product to help people that couldn't save any money make the biggest Financial commitment of their lives here's how it works the buyer pays a down payment of one percent and then Zillow makes an additional contribution of two percent at closing that is a grant and doesn't need to be paid back so even though houses are making more money than you are the price of Entry is being reduced just as fast but that's only make the down payment you still need to make
the repayments and if you can't put twenty percent down what helped you have of making repayments on a house well it's time to learn how money Works to find out if this circus really can go on forever this week's lesson is sponsored by Trade coffee now I know that this may not come as a surprise to most of you but my team and I need a lot of coffee to keep making content on how money Works how history works and compounded daily but I've been sticking with the same coffee for a while I mostly just
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with any subscription purchased by going to drinktrade.com forward slash how many works with free shipping customizable plans and anytime cancellation trade is making it easier to discover better coffee the second way that houses can keep on getting more expensive even when nobody can afford to buy them is because nobody is selling them but we also don't have anyone putting their home on the market just because they have a 30-year fixed rate below three percent so nobody wants to sell a home right now and there's still plenty of people who want to move home sales in
America are at their lowest level in a decade despite population growth according to data from the National Association of Realtors 6 million homes were sold in 2021 but now only 4 million homes are selling at an annualized rate potential sellers with a home loan don't want to sell because the rental market is even more unaffordable and if they move into a new home they will get a new home loan that has a much higher rate than what they are paying currently and therefore you have more people competing for rental space because the cooling of housing
market has kept people longer in rental rental tenure so that is the reason why a competition has increased the supply has been constrained because people are not moving from rental to order many people already moved during covid and another move so quickly would be too disruptive on their social and family lives in addition to the significant interest expense of new home loans the average homeowner spends 13.2 years in their home after a flurry of home buying activity in the last three years more Americans than ever are just settling into their new home and they have
longer than ever before they consider selling new buyers are also choosing to wait out their purchases until interest rates drop the average number of people living in a household also increased recently for the first time in 160 years after a long trend of smaller families and people choosing to move out into their own homes according to Pew research that published this report this was because more younger adults were choosing to or being forced to live with their parents for longer to avoid living in an unaffordable housing market the market is still active but regular buyers
and regular sellers are choosing to sit out until moving into a new home becomes more affordable and it's the people who are left that are the third reason this can keep going on longer than you think think there are three groups still in the game the first group are all cash buyers that have money from selling their old home and want to buy a new one if you are a boomer that purchased their home in the 1970s for three nickels and you now want to downsize now is an ideal time to take advantage of the
market when prices are higher the spread between a single family freestanding home and a smaller property is larger giving you more cash to live off of the second group are people moving Interstate unaffordable housing is pushing people out of expensive cities across the country you would probably prefer to stay in your home City even if you had a job that you could do from anywhere closeness to friends family and familiar amenities is why people only live 18 miles from their Hometown on average in defiance of the part-time hedge fund manager and full-time YouTube comedian Patrick
Boyle where should my friend how money Works live I don't know maybe Dubai he's one of those flashy YouTuber types he probably wants to live on one of those Palm Islands hang out at malls buying designer goods and maybe do some indoor skiing that's just the kind of guy he is I chose to stay in my crappy one bedroom San Francisco apartment because moving is a pain in the ass but if you're really struggling to afford a High Cost of Living City you can improve your lifestyle by moving to cheaper cities with lower rents and
property prices if you move from a city like San Francisco Seattle or New York to any other city in the country you are going to be able to buy a lot more house for the same money your higher income from working in these areas will push up local prices and in the process of avoiding the rising home prices you have just made it worse the third group are investors investors only care about the return on their assets prices are high right now and investors using financing to buy property are also paying higher interest rates but
in return they are charging higher rents to long-term tenants and short-term educationers if they list their properties on sites like Airbnb make no mistake prices are still too high the largest increase in home buying has come from this group according to Redfin year-on-year growth in investment purchases reached 145 percent in 2022 and institutional investors buying up stock for real estate investment trusts with the fastest growing group of investors real estate investment trusts or REITs work like index funds for Real Estate they buy a portfolio of properties using money collected from a large group of investors
meats are sold both over the counter through companies like Blackstone for high net worth investors or as exchange listed Securities for average people REITs used to focus on Commercial Real Estate like shopping malls hotels warehouses Office Buildings and farmland the high cost of these properties made them suitable for sharing between multiple investors residential REITs have experienced a sharp rise in popularity though because people that can't afford to buy a home themselves still want exposure to this Market some people are putting savings towards a down payment into REITs because they should provide returns consistent with the
residential real estate market so their savings won't be left behind by Rising house prices the popularity of this asset class has been caused by unaffordable housing and it's also made housing more unaffordable but this can't last forever this is the worst and as much as I hate to say it those stupid [ __ ] influencer thumbnails may be right things are starting to change this is why the market is largely resisted to sell off and why it's still possible for home prices to go even higher even though it kind of makes no sense an updated
Redfin report has revealed that investor purchases have slowed significantly and surveys from local agents in cities like Las Vegas Austin Miami and Houston revealed that institutional purchases have stopped completely the private Equity company Blackstone not to be confused with the investment index company BlackRock had to block investor withdrawals from its 71 billion dollars earlier this year sparking concerns that the whole system was overvalued if investors pull their money from these trusts too quickly the investment managers in this case Blackstone will be forced to sell one of their properties in their portfolio BlackRock was accused of
overestimating the price of the properties it had in its portfolio but that's hard to prove until it's forced to sell one of them but as soon as just one property needs to be sold all other comparable properties in that trust need to be readjusted to a similar value a short drop in the value of the trust could trigger more investors to withdraw their funds causing the manager to sell more properties pushing down prices even further but don't get your hopes up too much if you own shares in a read the easiest way for you to
liquidate your position would be to sell your shares to another investor which doesn't require any cash to be liquidated from the assets themselves the bonus fourth reason is that wealthy families are just doing a better job of holding on to more properties for themselves in the past family well struggled to get past the first two generations but now that investing has become so easy and lucrative we might be starting to live in a new age of nobility where family dynasties can last centuries one group of American billionaires is already there so go and watch my
new video over on how history Works to find out why the Rockefeller Fortune isn't likely to disappear ever and if you want to watch these videos dearly and get articles that will never be made into videos for YouTube then subscribe to my email newsletter compounded daily to keep on learning how money works
