Given the economy and interest rates, homebuying doesn't seem like it’s necessarily the way to go anymore. So consider this not your parents’ real estate advice. If you have a question about a story that matters to your life, give us a call at 1-800-618-8545. This episode was produced by Hady Mawajdeh and Carla Javier. It was edited by Miranda Kennedy, fact checked by Melissa Hirsch, engineered by Andrea Kristinsdottir and hosted by Jonquilyn Hill. Photo by PATRICK T. FALLON/AFP via Getty Images. Learn more about your ad choices. Visit podcastchoices.com/adchoices
Chapter 1: Is buying a house still a good investment in today's economy?
Is it worth it to buy a house? I think that's always been the go to investment for like past generations of like you buy a house and that's kind of your retirement plan. And that just doesn't seem realistic or even attainable to buy a house. So it's like, should I even try to do it? Is that something I should do?
This is a question I've wondered about, too. OK, I'm going to be honest. I love to scroll through real estate websites. But should we be buying homes? Given the economy and the interest rates, it can often feel like a fantasy. The market is just so much more different than it was when our parents were looking for starter homes. Is this really where our money should be going?
To get an answer, I called up James Rodriguez, senior real estate reporter at Business Insider. Do you ever just like scroll through Zillow dreaming of what it would be like to own your own home or am I telling on myself?
Not at all. I do that all the time.
Chapter 2: How have home prices changed in recent years and what does that mean for buyers?
So the conventional wisdom is that buying a home is the way to build wealth in here in America. Is that true? Has that ever been true?
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.
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.
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.
Yeah, I want to talk a little bit about why that conventional wisdom around home buying and building wealth isn't hitting quite like it used to. What's different for today's homebuyers? Hmm.
I think we just see the affordability aspect. People are stretched so thin budget-wise.
The majority of middle-class Americans say that they are struggling financially.
Their financial stress has increased since before the COVID-19 pandemic began. So when you look at inflation, economic instability, a lack of savings, all of these have increased the share of Americans feeling financially stressed.
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.
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Chapter 3: What challenges are today's homebuyers facing with affordability and mortgage rates?
It's very easy to do that. That's a little unfair. But yeah, what's what's keeping these younger generations out?
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.
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.
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.
A report released today by the National Association of Realtors paints a picture with housing data.
The Great Recession hits, employment there fell 1.5 million. We have not recovered that over all these years. We are still short of around 500,000 workers in construction.
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...
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.
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Chapter 4: Why are millennials and zoomers struggling to buy homes compared to baby boomers?
Yeah.
Yeah. Can you sort of run through kind of what the home buying experience and, you know, growth has been like from the boomer side and then sort of compare it to how it goes now?
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.
Ooh, okay. You can retire with that.
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.
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?
What would it mean for the economy if housing wasn't this go-to way to build wealth? Like if that was not the answer for how do I get a net worth?
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.
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
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Chapter 5: What does the housing market outlook look like for the next two decades?
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We're back, it's Explained It To Me, and we're talking about whether it's a good idea to buy a house these days. It's 2025 and climate change is definitely a factor. So I called up Dr. Jeremy Porter. He heads up research into housing and climate for First Street. They analyze the climate risk of homes and share that analysis with websites like Zillow and Redfin.
It really is the point at which your standard American feels climate change. I mean, we're seeing that there's more hurricanes. Breaking news, Hurricane Beryl slamming Texas, making landfall just a few hours ago.
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Chapter 6: How do home price gains differ between baby boomers and millennials?
Francine is now a hurricane in the Gulf of Mexico heading for Louisiana. Whipping winds. Torrential downpours and communities submerged.
Hurricane Debbie wreaking havoc across the coast.
This is the city of Asheville in the western mountains of North Carolina, 2,000 feet above sea level and hundreds of miles away from the nearest coastline. But such was the force of Hurricane Helene.
We're seeing that there's more extreme precipitation events. What we saw in L.A. is that there's more wildfires, more severe wildfires than we've seen in the past. But the way that it's affecting individuals is that we're seeing more property damage, more people being impacted by these events directly to their properties or to their communities.
Fear and concern is growing tonight as flames light up the Los Angeles hillsides. Firefighters are scrambling to contain several major fires tonight. Just into our newsroom, we are learning of another fire erupting, this time in Sylmar in the San Fernando Valley.
Overnight, catastrophic damage reported as severe storms slammed the central U.S. A tornado emergency in northeastern Arkansas. Powerful twisters destroying homes. In Missouri, an EF1 tornado winds nearing 100 miles an hour, causing widespread destruction in the town of Nevada. Homes and businesses reduced to rubble.
Lots of times people live in places like Miami or they live in Houston and they'll say, oh, you know, the weather's always been like this in the area that I'm at. And they'll say, well, what about insurance? And they'll say, well, insurance is killing me.
And lots of times people won't make the connection that the reason insurance is spiking is because there's more damages and there's more payouts from the insurance companies.
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Chapter 7: What could it mean for wealth building if housing is no longer the primary investment?
That's really interesting. Our caller is in her late 20s, Miranda. She lives in the Twin Cities, and she's considering whether buying a house is the right decision for her. What would you say to someone like her?
I think we're at a point at which we finally have data to help make decisions like this. And I think one of the biggest problems that we've seen so far in the way that climate and real estate are being covered is that climate's driving down the value of home prices. It's sort of reversing the trend that we've had in the US for decades.
you know, a century where the American dream was owning a property and people have aspired to do that. I think what we're seeing, though, is that there's a lot more nuance to the decision making process than simply avoiding homeownership because of climate risk. I don't think people should avoid homeownership. I think it's still a good investment.
I think that there are ways to optimize that process now, though, that do include taking climate into account the same way we've taken other factors into account in the past? How do I, you know, optimize the home buying process so that I'm reducing the risk and maybe I'm buying a home that has, you know, a flood score of a five instead of a flood score of a 10?
What's an example of that?
The quintessential example in Miami has been sort of this movement from parts of the Miami Beach, sort of coastal region, into an area called Little Haiti that's further inland in Miami-Dade County. It's right along the railroad tracks. It's the high point of Miami-Dade County.
And people on the real estate market at that time were asking their realtors for three bedrooms, two bathrooms, 2,000 square feet, and a certain level of elevation. They wanted to be a certain level above sea level because of tidal flooding and because of increasing sea level tidal flooding events along the coast. And sort of the limestone bedrock in Miami meant there really wasn't anywhere safe.
The water got underground and it rose up through the ground. But high points, places like Little Haiti became much more valuable than they had been prior to this because people were aware of the flooding risk within that market.
I wonder how all of this plays a role in like inequity and gentrification and things like that. Like who's getting pushed where? Who's having the impacts of climate change?
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Chapter 8: How is climate change affecting home insurance and housing risks in 2025?
Yeah, it's an important part of our analysis because a lot of research that exists today basically says, hey, sea level rise is happening on the coast, millions of people are going to move away from the coast. But if you go back and model the data historically and you layer in, to your point, all of this geopolitical information, all of this economic investment information,
really the social, political, and economic drivers of place, why people choose to live where people end up living, those things outweigh climate risk in a lot of cases.
OK, so the story is bigger than just climate. And in fact, the story of home buying is bigger than any one single factor. What that means for those of us still considering opting into the Home Ownership Society and also what to do if you aren't. That's coming up after this break. We're back. This is Explain It To Me, and I was super excited to get to call up our next guest.
Hey, I'm Mandy Woodruff-Santos, and my podcast is called Brown Ambition.
OK, so I have to admit, I am a brown ambition listener. You know, I'm trying to get my big girl finances in order. So I'm very happy to be talking with you today about homeownership, which feels like one of the big girl finance things.
Yeah, it sure is, isn't it? I mean, at least that's what society wants us to think. Got to get a Birkin, got to get a home. Big Birkin, big hole, five, six figures. Are you a homeowner? I am. Yeah, I am. I bought my house in 2018, which feels like a thousand years ago. This is pre-motherhood, pre-pandemic.
And at the time, our total mortgage, which included property tax and the actual loan monthly principal that we were paying was about $2,700. That's increased a thousand bucks since then. So now I'm spending $3,600, so nearly $4,000.
Oh my gosh.
And I'm like, oh, I'm reminded. Oh yeah. That's why I always feel broke.
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