the kids aren’t buying

I had a conversation at work with someone who has adult kids. I’ve known her several years, and she was commenting on the background in our video and asking whether this was a new place relative to prior ones she’d seen, knowing my standing a serial renter.

She noted that both her adult kids now have the financial wherewithal to buy a place, but they are both renting because the financials don’t make sense relative to investing their money elsewhere. I certainly see this casually browsing buildings in terms of sales listings versus rental listings and seeing the speed with which the latter go while the former languish.

FTAID, the adult kids are in NYC.

The zeitgeist is interesting compared to ~20 years ago. The financials of buying are better now than back then. They’re not good in absolute terms IMO, just less bad. Rents are up ~65% (inflation basically) while prices are up ~10%, with mortgage rates about the same. That’s not nothing in terms of closing the gap on prices being out of whack compared to rents. Nevertheless, while ~20 years ago “voluntary” renters like me were somewhat of an outlier, nowadays it seems completely normalized.

What changed? I gotta imagine a lot of this is trend-following. Stocks were going through their lost decade-plus. It wasn’t until 2015 that the S&P 500’s level finally exceeded its 2000 high on an inflation-adjusted basis. Or if you look at it in nominal terms, or consider total returns inclusive of dividends, it was perhaps 2012. Meanwhile, the housing bubble made RE look real nice from the rear view mirror. Now, those two dynamics have exactly reversed.

The condo market, at least for smaller units such as studios, one bedrooms, in the cities for which I own real estate and am relatively familiar with, is not really great. I’m talking about Toronto and LA, NYC and San Francisco, although I believe SF is better than the other three due in part to the AI boom. There are many reasons but I do believe one of the reasons is the “younger” generation is no longer that interested in owning real estate and no longer sees it as a stepping stone to the upper middle class. That’s a big demographic for studios and one bedroom. When I graduated and got my first “real” job, I assumed I would have to rent but when I ran the numbers, owning was comparable to renting and for me it was a no-brainer what to do. I think many people today, if there were in my shoes, would make a different decision. Also, when I got my first real job way back in 2002, I was offered an extremely generous signing bonus, which was even more generous if I bought a home in the first 6 months. Many of my classmates, in difficulty professional fields, also received very generous incentive to buy in the first months of their new job. My next two jobs also included very generous relocation packages but that stopped with my fourth job, and talking to many former colleagues and the occasional head hunter, relocation packages have pretty much vanished. I’m not sure I could have afforded to buy my first home had my employer offered such generous incentives, such as paying part or all of down payments and closing costs, better interest rates, paying moving expenses, etc, etc…so I think that may also play a role

911, what was city and cap rate?

It was so long ago, I don’t remember the exact numbers. It was Jersey city. As I recall, the monthly rents I was looking at were very comparable to my monthly mortgage rate for a 5/1 ARM. I’m pretty sure I was getting a preferential interest rate as part of the company’s relocation package. And the company was paying closing costs. I don’t think I was getting any down payment assistance but fortunately I had a lot of savings. Probably the company relocation cut 0.25-0.5% off the 5/1 arm rate and all this made buying very competitive with renting so I just leaped into home ownership without much thought. I thought the probability of me needing to move in 5 years was highly unlikely. So my first home was in Jersey City and to this day, I am very fond of JC and New Jersey in general. If not for the colder winters, I could see us spending the remainder of our years in the Garden State!

Meant monthly mortgage payment, not rate