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Home Ownership for Young Americans Is Falling. So What?

Written by Gary North on August 7, 2014

We are told that there is a fundamental change taking place in the United States with regard to home ownership. This is nonsense, and the sooner you figure this out, the better.

We are told that home ownership in the United States peaked in 2004 at 69%, and is now down to 65%. This represents a marginal change. Economic conditions are different, but considering the minimal shift in there percentages, we should not take any of this seriously. But it makes for great headlines.

What about young families? We are told that peak home ownership for people under age 35 reached about 45% in 2004. It is now down to about 35%. This is a 10 percentage point drop, or 22%. This is not small, but it is not serious.

The important aspect of home ownership is not the potential profit that most families enjoy. The important thing is this: it is a system of forced saving. Young people buy a home, they sign a 30-year mortgage, and they move in five years. They are just like everybody else. Few Americans stay in the same home more than about five years. So, the person takes whatever equity he has from selling his home, which in five years is probably not very much, and he uses this equity as a down payment on the next house. He keeps this up, half decade after half decade, and at the end of his life, he has some money saved. But the money is worth only a fraction of what it was when he bought the first house. He has also spent a lot of money in keeping these houses in good shape. Houses on average are sinkholes for money. People don’t keep track of how much money they are really spending, unless they are buying the home as an investment property. But people who buy homes as investment properties are few in number, and they don’t sell homes every five years.

When you consider the transaction cost of selling a home, which is in the range of 6% because of real estate commissions, selling a home every five years is a really bad idea. It eats up your equity. If you bought the home with a 30-year mortgage, and you kept the home is an investment property, and you get the renters pay off the home, then you have made an exceedingly wise investment decision. But this is not what the vast majority of Americans do. They sell the home that they are moving out of, because they want to move up. They want what little equity they have received out of the home to serve as the down payment for the next home, which is more expensive, in a better neighborhood, and is larger. In other words, this is not an investment; this is a consumption good. They are using a home as a way to buy status. This goes back about as far as men have been married, and wives have wanted to move up. Men also like status, and housing is a way of getting it. But let’s not confuse this with investing. Investing is where you buy a starter house, and you never sell it.

(For the rest of my article, click the link.)

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8 thoughts on “Home Ownership for Young Americans Is Falling. So What?

  1. Phillip the Bruce says:

    Do the "experts" have any explanation as to why home ownership is falling among young adults? How about this? They are graduating from college with mega-thousand dollars in student loan debt, and the best job they can find requires them to say, "You want fries with that?" They are moving back in with Mom and/or Dad. They can't afford to buy. They can't even afford to rent.

  2. Well said Phillip…add these facts. The Federal Government "owns" the student loans and Obama is as likely as not forgive them for their votes in 2014 or 2016. Fannie Mae and Freddy Mac own another huge non- performing loan portfolio. Large to local banks are not going to loan to any but the best credit with a large down payment…Dodd-Frank and half billion dollar and up fines to Chase, B of A and others.

    And then there is the marvelously marketed by Old Republicans…Reverse mortgage! I believe 90% or more of these properties will be owned by Fannie Mae also. Add to the huge overtaking of land from states by BLM, NPS, EPA.
    America is no longer the Land of the Free!

  3. This is absolutely correct. But also, today, young people expect a house of 2000 sq. ft. plus. Our first home was 1200 sq. ft. We brought up three daughters and a dog. It was a little crowded but we made do. The entitled of today seldom make do. The best or stay in Mom and Dad's basement. See my blog at http://cranky-conservative.blogspot.com

  4. Random Person says:

    This is great advice. As a matter of fact, right now my wife and I and our young family are at the beginning stages of looking for a home upgrade. We bought a few years ago for $260k, and now our home is valued at $330k. We have been considering using that equity exactly as Dr. North says, as a down payment for a new house. But now I'm going to share this article with her and we will look into the possibility of renting out the current home and starting with a new mortgage for a new home.

  5. CrustyOldGeezer says:

    960 sqft, 3 kids, 4 grandkids and numerous cats and dogs over 35 years on a small city lot.

    Currently, no kids, no grandkids, one small (Shih Tzu) and one stray outside cat.

    2200 sqft on 3 acres.

    For some odd reason my desk and computer is in a small bedroom, 2 desks, 2 credenzas, 4 computers, 5 monitors, a rather large flat screen TV, assorted bookcases and knickknack shelves with stuff.

    And I ask myself daily….


  6. Home ownership is a priviledge, not a right. Check the Constitution.

  7. Check your spelling! And Home ownership IS a right, the right to peacefully trade and be left alone by government!

  8. 1baronrichsnot1 says:

    Careful there! That's exactly what happened the last time, rental buys, parlaying your home, just buy one live in, not a bunch to make money on! It can and will happen again! The gov't will see to it! Also, when would you sell, you buy in todays dollars worth and sell at tomorrows worth, we are in for some worthless dollars, much faster than the last 100 years! But you are right, hard assets are the place to be. Just don't overload, and have protection for the downturn.