James Rodriguez
Appearances
Today, Explained
Is a house still a good investment?
Definitely with past generations, and I think especially has this hold on people today when they've seen, especially baby boomers who may have bought homes decades ago and have reaped all the rewards from this really crazy moment in the housing market where prices jumped so substantially during the pandemic.
Today, Explained
Is a house still a good investment?
If you compare the end of 2019 to the beginning of this year, home prices are up about 50%. So historically, we have seen people invest a lot in their homes. And for some people, it is absolutely true that they have reaped substantial rewards. I think it's important to look closer at that, though, and see that for some people, it has been really perilous.
Today, Explained
Is a house still a good investment?
There have been periods of home price declines. We saw this during the great financial crisis in 2008, when some people were lost all the money that they had put into their homes because of the foreclosure crisis. And so I think it's important to recognize that while that has been true for some people, it hasn't been true for everyone. And it may not be something that's true in the future.
Today, Explained
Is a house still a good investment?
I think we just see the affordability aspect. People are stretched so thin budget-wise.
Today, Explained
Is a house still a good investment?
Mortgage rates, they went super low during the pandemic. They were at record lows and that allowed people to get in because even if prices were rising, the rate on their loan was so low that you could kind of stomach the monthly payments and make it work. Whereas now we've seen mortgage rates rise to more than double those levels.
Today, Explained
Is a house still a good investment?
And home prices haven't really stopped climbing, especially in areas where there's still not a lot of homes on the market. There's uncertainty around just the future of the economy. Interest rates are up. So all of that together really makes it hard to see a future in which people who are already stretched thin renting, how do you save up money for a down payment?
Today, Explained
Is a house still a good investment?
How do you justify these higher mortgage rates? And how do you bring it all together to become a homeowner? It's a real challenge right now.
Today, Explained
Is a house still a good investment?
It is easy to blame baby boomers, especially when they've been so fortunate in the housing market at large. But I think one of the things you have to think about, too, is the demographic side of things. And we had this huge wave of millennials, currently the largest living generation in the U.S.
Today, Explained
Is a house still a good investment?
We knew that they were going to be hitting their prime home buying years around the turn of the decade, 2010s going into 2020. And there was just not enough building happening after the Great Recession to keep up with all of that demand that was on the horizon. So you had people who were also starting to work remotely, and so they wanted more space.
Today, Explained
Is a house still a good investment?
And it can be tough to have an optimistic outlook for home buying chances when all of these forces seem to be conspiring against younger generations in ways that older generations can't. just didn't have to deal with. I think we're still feeling the effects of the Great Recession in that respect.
Today, Explained
Is a house still a good investment?
Another reason why you saw home prices rise so dramatically is not only were millennials competing against their generation, but they were also competing against baby boomers in the market who had cash, who had substantial savings, and were able to, in a lot of cases, bid up home prices. And we're seeing, as you mentioned, baby boomers staying in their homes longer than ever. But eventually...
Today, Explained
Is a house still a good investment?
They will be aging out of the market, which is kind of a euphemistic way of saying dying. And when you look ahead to that and substantially less people competing for homes in the U.S., you see household growth slowing down as well. More deaths from boomers combined with lower birth rates over the next couple of decades. And all that equates to weaker demand for homes going from 2030 through 2040.
Today, Explained
Is a house still a good investment?
Yeah. So you think of a baby boomer who maybe they bought a home in 1994 and they hold on to it for the life of their mortgage for 30 years. And then they sold last year for, if you look at typical home price increases, a 305% gain. So that's, you know, say they bought a $300,000 home, it's worth more than a million dollars by the time they sell it.
Today, Explained
Is a house still a good investment?
It's a crazy return. It's really mind boggling to think about. And, you know, the same millennial who maybe bought a $300,000 home in 2010, they might not see as substantial increases over the next 30 years, but they still got to reap all the benefits of those crazy pandemic years when home prices were rising so around 50%. And so you bring that forward and you consider all the gains since 2010.
Today, Explained
Is a house still a good investment?
And then you look at people who are buying homes today and it starts to raise questions about, will younger buyers today get the same financial benefits of homeownership as their predecessors?
Today, Explained
Is a house still a good investment?
I think that's a really interesting question and one that honestly we don't know because for so long it has been looked at as the primary method of wealth building. You think about millennials, the typical elder millennial who's born in the 80s, they saw their wealth, the value of their assets increase by more than 57% just between 2019 and 2022.
Today, Explained
Is a house still a good investment?
And 41% of that, 41 percentage points was attributable to real estate. Wow. So it's a huge portion of people's assets. I think it's just, it's tough because for every person who owns that real estate, it's all concentrated in this one asset that's not diversified. It's not like it's in the stock market. And if one of your
Today, Explained
Is a house still a good investment?
One of the companies in your portfolio tanks, it's okay because you've spread out the risk amongst multiple companies. It's really all concentrated in this one thing that can be threatened by a wildfire or a flood. And that can be concerning for anyone looking at the housing market and seeing so much of that wealth concentrated in homes.