Why Buying Your First Home Is Way Harder Now Than in the Swinging '60s (Another Lesson From the School of Rock)
This is what's happening for the many young Americans struggling to break into the housing market. And can family members who've already achieved their savings goals help?
In 1964, The Beatles released A Hard Day's Night, a soundtrack to a whirlwind year that captured the frenzy of Beatlemania.
Buried among the album's better-known hits is a John Lennon song called "When I Get Home." The song is energetic, upbeat and driven by a simple desire: After a long and exhausting journey, he just wants to get home.
More than 60 years later, many young Americans share that same desire. The difference is that today's journey home is proving far more difficult than Lennon could have imagined.
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For generations, buying a first home was considered one of the defining milestones of adulthood. It wasn't easy, but it was attainable. A starter home represented more than four walls and a roof. It was a foundation for building wealth, raising a family, and creating a sense of stability and belonging.
After nearly four decades of working with families, I have observed that most families build their wealth primarily through two pillars.
The first is the home equity they build as prices rise over time and mortgages are paid down a little each month.
The second is the regular deposits they make to their 401(k) plans through payroll deduction over decades of employment.
Today, that first step onto the property ladder is becoming increasingly difficult.
Hurdles for first-time buyers
According to a recent Zillow report, there are now 242 cities across the United States where a starter home costs $1 million or more. Before the pandemic, that number stood at just 80. In just a few years, the number of cities where a modest entry-level home carries a seven-figure price tag has more than tripled.
The challenge facing young families extends well beyond the purchase price itself. Home values have risen substantially over the past decade, but so have many of the ongoing costs associated with homeownership. Property taxes, insurance premiums, utilities and maintenance expenses have all climbed, making ownership more expensive even for families that can afford the mortgage itself.
Then there is the mortgage.
For much of the decade following the Great Financial Crisis (GFC), prospective buyers could borrow money at historically low interest rates. While home prices were rising, monthly payments remained relatively manageable because financing costs were exceptionally low.
That equation has changed dramatically. Higher interest rates combined with higher home prices have pushed monthly mortgage payments to levels that would have seemed unimaginable only a few years ago.
Many younger buyers view mortgage rates near 6% as unusually high, but historically, they are not. When I began my career in 1987, mortgage rates were often between 9% and 10%, and rates above 5% were considered normal for much of the following two decades.
The difference today is that buyers are confronting those rates after spending more than a decade anchored to the exceptionally low borrowing costs that followed the GFC. Economists call this recency bias. When rates returned to more historically typical levels, many buyers experienced sticker shock.
As a result, many young families find themselves squeezed from both directions. Saving for a down payment has become more difficult because everyday living expenses consume a larger share of household income.
Student loan payments, childcare costs and rising insurance premiums often leave little room for accumulating the savings needed to buy a first home.
At the same time, even those who successfully save enough for a down payment often discover that the monthly mortgage payment remains out of reach.
Real cost of delayed homeownership
In many ways, this story is about more than housing.
Homeownership has historically been one of the primary ways middle-class Americans build wealth. A home is often the largest asset a family will ever own. It provides the opportunity to accumulate equity, benefit from appreciation over time and create financial flexibility for future goals.
Delaying homeownership by five, 10 or even 15 years can have meaningful consequences for long-term wealth creation by delaying the accumulation of equity and the compounding effect of home price appreciation.
According to research from MBS Highway, an organization that conducts economic research and forecasting on the real estate and mortgage markets, homeowners tend to have substantially higher net worth than renters over time. Property ownership serves as a forced savings plan, an inflation buffer and a stability anchor for long-term financial security.
This is one reason housing affordability has become such an important economic issue. It is not simply about real estate markets or mortgage rates. It is about whether younger generations will have access to the same wealth-building opportunities that previous generations enjoyed.
Helping others break into the market
Of course, every generation faces its own challenges. The path to homeownership has never been perfectly smooth. Markets change, interest rates fluctuate and economic conditions evolve. Yet the combination of higher prices, higher financing costs and higher ongoing ownership expenses has created a particularly difficult environment for today's first-time buyers.
I have had many conversations with clients who have children and grandchildren struggling to buy their first home. They understand the frustration and, at times, the feeling that the math simply doesn't work.
In some cases, families that have used the financial planning process and are confident they have achieved their own retirement goals are exploring ways to help younger generations with down payments or other housing-related expenses as they work toward financial independence.
Many young families are simply looking for a place to start. They are looking for a place to put down roots, build a life and create a sense of permanence. In other words, they simply want to get home.
Back in 1964, Lennon sang about the anticipation of finally reaching the place where he wanted to be. For many young Americans today, that same destination remains the goal. The challenge is that the road home has become far longer and more expensive than it was for the generations that came before them.
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