For most Americans, after the decision to invest in education, the most important financial choice is if, and when to purchase a home.
The quilt of the American dream is tightly woven with the fabric of equity – and most significantly equity in our homes. For generations, the only financial advice that Mark Twain shared, “Buy land, they’re not making it anymore.” – was canon. It bound us together as a symbol (perhaps the symbol) of success and freedom.
That belief was shattered in 2008 and 2009 as the Great Financial Crisis finally caused a generation (ironically, the Baby Boomers) to get their proverbial heads handed to them by over leveraging, over trusting and over investing in residential real estate. Leverage always has two stories.
Those lessons stuck with young folks as the market was slowly renovated. Along the way, we learned that renting, sharing, borrowing and chartering could mitigate many of the risks that pummeled those that walked the path before us.
But where does that leave Gen Z today? What should be done? Is it time to finally capitulate on the old-fashioned value of ownership? – Or is it wise to continue to wait for the “next shoe” to drop as wallflowers protect their A.I. wealth and hope to watch home equity evaporate under the heat of higher interest rates?
The data points to capitulation ... and caution. New housing starts have convincingly bottomed – so apparently those 32% of 25-year-olds that are still living in their parents’ home (16% in 1980) are starting to move out – and they’re unlikely to stop as supply improves and costs stabilize.
But prices for existing homes, Year over Year (YOY), are hitting new lows. What wins?
Our insight is simple. Home prices will likely bottom this summer as jobs continue to be plentiful, wages continue to grow, interest rates stabilize and construction costs level out. Buying a home will get easier – and prices won’t move much as rates keep enough pressure on affordability to balance new demand.
From here it looks like the US housing market is heading into a perfect summer day. Sun’s out – not too hot – and no storm on the horizon.
No fireworks here. Get out to the field or lake and enjoy the American dream.
Important Disclosures & Definitions
Performance data quoted represents past performance. Past performance is no guarantee of future results; current performance may be higher or lower than performance quoted.
One may not invest directly in an index.
AI000302 07/03/2024
