If Nobody Can Afford A Home... Who's Going To Buy Them?

Summary

The video script discusses the growing unaffordability of housing for young people, with only 21% of homes sold in 2022 being affordable. It explores reasons for rising house prices, such as low down payment requirements and the role of investors and REITs, despite stagnant wages. The script also highlights the potential for a market crash if investor withdrawals become widespread, and touches on the possibility of a new era of wealth consolidation among families.

Takeaways

• 🏠 **Home Affordability Crisis**: Fewer young people can afford to buy homes, and housing prices continue to rise annually.
• 💰 **Saving for a Down Payment**: The idea of saving a 20% down payment is increasingly difficult for many, highlighting the disparity between wages and housing costs.
• 📈 **Rising House Prices**: Despite the affordability issue, house prices keep increasing, which seems counterintuitive if no one can afford them.
• 📊 **Housing Market Trends**: Home prices can rise even if they're unaffordable because the cost of entry (down payment) is being reduced, not the total cost.
• 🤔 **Market Sustainability Question**: There's a concern about the sustainability of the housing market if the average person cannot afford to buy a home.
• 📉 **Wage Stagnation**: Wages have not kept pace with the increase in house prices, making it harder for the average person to save for a home.
• 🏦 **Banking and Lending Practices**: Lenders and banks have adjusted their practices, such as accepting smaller down payments, to keep the market active.
• 🔒 **Low Inventory Due to Fixed Rates**: Many homeowners are not selling due to low fixed-rate mortgages, leading to a constrained supply in the market.
• 💼 **Investor Impact**: Investors, including REITs, are a significant force in the market, driving up prices and contributing to the unaffordability for average buyers.
• 🚨 **Signs of Market Change**: There are indications that the market may be reaching a tipping point, with investor purchases slowing and potential for a price correction.
• 👨‍👧‍👦 **Generational Wealth**: Wealthy families are increasingly holding onto properties, potentially leading to a new age of family dynasties in real estate.

Q & A

Why are fewer young people able to buy a house today compared to the past?

The script indicates that homes are becoming more expensive each year, making it challenging for young people to afford a house. The high cost of homes, coupled with the difficulty of saving a significant down payment, contributes to this trend.

What is the significance of a 20% down payment in the context of home affordability?

A 20% down payment is traditionally seen as a benchmark for securing a mortgage. However, the script suggests that saving for such a down payment is becoming almost unimaginable for many, highlighting the growing gap between wages and house prices.

Why is owning a home with a 30-year mortgage considered financially beneficial over renting?

The script explains that owning a home with a 30-year mortgage is often cheaper out of pocket every month in most cities compared to renting. Additionally, it allows individuals to build equity in a property they can eventually own outright.

According to the Redfin report, what was the percentage of affordable homes for sale in 2022 compared to 2021?

The Redfin report cited in the script shows a significant decrease in affordable homes, with only 21% of homes for sale in 2022 being considered affordable, down from 60% in 2021.

What is the average salary of an American according to Forbes, and how does it relate to the housing market?

According to Forbes, the average American makes a salary of $59,000 before tax. After taxes and deductions, they take home about $49,000. The script illustrates that even if this average person saved 70% of their take-home pay, they would still be unable to keep up with the rapid increase in house prices.

How does the housing industry accommodate people who cannot afford a large down payment?

The script mentions that the housing industry has adapted to allow people to enter the market with smaller down payments. For instance, the average down payment for first-time homebuyers is just 7%, and for repeat purchasers, it's 17%, making it possible for people to buy homes with smaller savings.

What is Zillow's approach to helping people with limited savings to buy a home?

Zillow is trialing a one percent down payment loan product. In this arrangement, the buyer pays a 1% down payment, and Zillow contributes an additional 2% at closing as a grant that does not need to be repaid.

Why might the housing market continue to see rising prices even if many people cannot afford to buy homes?

The script suggests that the housing market could continue to rise due to factors such as low supply as people are not selling their homes, the presence of cash buyers and investors, and the movement of people from expensive cities to more affordable ones, which can drive up local prices.

What role do all-cash buyers play in the current housing market dynamics?

All-cash buyers, often individuals who have sold their previous homes, contribute to the market by having the financial means to purchase homes outright. This group can take advantage of higher market prices to maximize their returns.

How do real estate investment trusts (REITs) impact the housing market and affordability?

REITs, which act like index funds for real estate, allow multiple investors to pool money to buy properties. The popularity of residential REITs has increased as people seek exposure to the real estate market without directly purchasing homes. However, this increased demand can drive up housing prices, making affordability more challenging.

What signs indicate that the current housing market situation might not be sustainable?

The script points to a slowdown in investor purchases and a halt in institutional purchases in certain cities. Additionally, the need for companies like Blackstone to block investor withdrawals from their funds suggests potential overvaluation and instability in the market.

Outlines

00:00

🏠 Housing Affordability Crisis

The script discusses the growing difficulty for young people to afford housing, with home prices increasing annually while wages stagnate. It highlights the challenge of saving for a 20% down payment and the disparity between renting costs and owning a home. The affordability of housing has reached an all-time low, with only 21% of homes sold in 2022 considered affordable, compared to 60% in 2021. The script also touches on the role of the real estate industry in making homes unaffordable and the rapid increase in home prices, outpacing the average American's ability to save for a down payment.

05:02

📈 The Market Dynamics of Housing Prices

This paragraph delves into why housing prices continue to rise despite the affordability crisis. It explains that houses don't need to be affordable for everyone to buy them, thanks to the industry facilitating down payments rather than full purchases. The script mentions the average home price increase from 2020 to 2023 and contrasts it with the average American's salary and savings rate. It also discusses how lenders and banks have adjusted down payment expectations, with Zillow trialing a 1% down payment loan product, making it easier for people to enter the housing market despite high prices.

10:03

🔒 Low Housing Supply and Its Impact

The script addresses the issue of low housing supply due to homeowners not selling their properties, especially with low-interest rates making it unattractive to move. It points out that the number of homes sold has dropped despite population growth and that potential sellers are avoiding the market due to higher rates on new home loans. The script also discusses the effects of the rental market's unaffordability, longer rental tenures, and the reluctance of buyers to purchase until interest rates decrease. It mentions the role of cash buyers, interstate movers, and investors in keeping the housing market active despite the challenges faced by regular buyers and sellers.

💰 The Role of Investors and REITs in the Housing Market

This paragraph examines the impact of investors and Real Estate Investment Trusts (REITs) on the housing market. It describes how investors are driving up prices due to high demand and the use of financing, leading to higher rents. The script notes the significant growth in investment purchases and the shift of REITs from commercial to residential properties, which has been fueled by the unaffordability of housing. It also discusses the potential risks of this trend, including the slowdown in investor purchases and the concerns over the overvaluation of properties within these trusts.

Keywords

💡Affordability

Affordability in the context of the video refers to the financial capability of individuals to purchase a home. It is central to the theme as the video discusses the decreasing affordability of homes for the average American, with only 21% of homes being affordable in 2022 compared to 60% in 2021. The script highlights that this decline in affordability is a significant concern for potential homebuyers.

💡Down Payment

A down payment is an initial portion of the purchase price that a buyer pays upfront when buying a home. The video emphasizes the challenge of saving for a 20% down payment, which is considered standard in the housing market. The script also mentions Zillow's trial of a 1% down payment loan product, indicating the changing dynamics of home financing.

💡Housing Market

The housing market is the economic sector involving the buying and selling of residential properties. The video discusses the housing market's current state, where house prices are increasing at a rate that outpaces wage growth, making it difficult for many to enter the market. It also touches on the potential for a market crash and the role of investors in driving prices.

💡Mortgage

A mortgage is a loan provided by a financial institution to purchase a home, which the buyer pays back over time with interest. The video mentions the advantage of owning a home with a 30-year mortgage being cheaper out of pocket than renting in most cities, highlighting the financial benefits of homeownership despite the high entry costs.

💡Equity

Equity in the context of the video refers to the value of an asset, such as a home, minus any outstanding mortgage or liabilities. The script suggests that owning a home allows individuals to build equity, which can be a foundation for financial stability and wealth accumulation over time.

💡Wages

Wages are the compensation paid to employees for their work. The video points out that wages have not kept pace with the increasing house prices, making it more difficult for the average person to afford a home. It uses the example of the average American salary and the proportion that would need to be saved to keep up with house price growth.

💡Investors

Investors in the video are individuals or entities that purchase properties with the intention of earning a return on their investment. The script discusses how investors, including institutional investors and REITs, have contributed to the high demand and prices in the housing market, despite the affordability challenges faced by regular buyers.

💡REITs (Real Estate Investment Trusts)

REITs are companies that own, operate, or finance income-producing real estate. The video explains that REITs have become popular among individuals who cannot afford to buy homes but still want exposure to the real estate market. They allow multiple investors to pool their money to invest in a portfolio of properties, which has contributed to the high housing prices.

💡Interest Rates

Interest rates are the percentage of a loan that a borrower must pay as interest to the lender. The video mentions that higher interest rates on home loans can make purchasing a home more expensive, which is a factor in the affordability crisis. It also discusses how low interest rates have influenced people's decisions not to sell their homes.

💡Rental Market

The rental market refers to the sector of the housing market where properties are rented out to tenants. The video notes that the rental market's unaffordability is pushing people to consider homeownership, but also that the high cost of renting is a factor in people's reluctance to sell their homes, as they may need to rent themselves.

💡Housing Affordability Crisis

The housing affordability crisis is a situation where the cost of housing is so high that a significant portion of the population cannot afford to buy a home. The video discusses this crisis, suggesting that it is at its worst point in history and exploring the implications for the housing market and society.

Highlights

Fewer young people can afford to buy a house, with homes becoming increasingly expensive annually.

The concept of saving a 20% down payment is becoming nearly unattainable.

Rents can increase dramatically with little notice, impacting financial stability.

Owning a home with a 30-year mortgage is often cheaper than renting in most cities.

Only 21% of homes sold in 2022 were affordable, a significant drop from 60% in 2021.

Housing affordability has reached its lowest point in history according to a survey.

Houses don't need to be affordable for purchase due to the industry facilitating down payments.

The average home price in the U.S. jumped by $100,000 in less than three years.

Wages have not kept pace with house prices, making it difficult for the average person to save for a home.

The average down payment for first-time homebuyers was just 7%, according to the National Association of Realtors.

Zillow is trialing a 1% down payment loan product to assist those struggling to save for a home.

Home sales are at their lowest in a decade, despite population growth.

Many homeowners are choosing not to sell due to low-interest rates on their current loans.

Investors are a significant driver of the housing market, with investment purchases growing 145% year-on-year in 2022.

Real Estate Investment Trusts (REITs) are becoming increasingly popular, contributing to the unaffordability of housing.

The housing market may be reaching a tipping point as investor purchases slow and institutional purchases halt.

Wealthy families are increasingly holding onto properties, potentially leading to a new age of dynasties.

Transcripts

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

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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

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