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

Interesting that the company was paying closing costs. The interest rate I get, especially if they’re a bank or have a deal with a bank, but closing costs is just weird. Unless it was part of a “use it or lose it” relocation bonus.

>> I think many people today, if there were in my shoes, would make a different decision.

I don’t think people have been in those shoes anytime for the past 20 years. You’re describing a time when ARMs were ~4% and (per some calcs based on what you said) your cap rate was 4-5%. In NYC, those cap rates dropped to 2-3% real quick as the bubble fully inflated. And after 20 years of moribund prices, they still only sit at 3-4% with ARMs at 5-6%. Or by your preferred calc back then, instead of monthly payments that were about the same as rent, it’s currently (in NYC, anyways) 40% higher.

>> 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.

Do you see this reversing anytime soon?

This is just my personal opinion…but the appeal of living right in the middle of big cities really took a hit during Covid and I don’t see it ever returning fully. I bought my condo in San Francisco 3.5 years ago because condo prices plummeted. I bought it for $200k less than the previous owner in 2019. I was very confident that in 2-3 years the market would rebound significantly. It has not, although with the AI boom possibly I can eke out a tiny profit. In downtown LA, the market has gone sideways. Crime and homelessness is still a problem and many people just don’t believe the revival stories. Toronto I think is oversupply, they just built way, way too many condos. Builders were just overconfident there would always be buyers and right now there aren’t. NYC is relatively stable, my condo has gone down in value a little from buying 4 years ago but not much. I feel working against NYC is incompetent government and just exorbitant cost of living. Of course when I bought in NYC, I realized how expensive it was. But I was focused mostly on housing costs. I never fully appreciated how expensive food, gas, parking, handyman and repair services, taxes, etc, etc…Even my vet bills for our dog are so outrageous in Manhatten, we’ve decided to take him to a vet an hour drive away in Long Island to save money. I spend half the year in either Bay Area or SoCal and neither of those areas are considered cheap but just from looking at my bank account, NYC is significantly pricier. Work from home is never going away at least for certain professions. So some people will always choose that option for lower costs, closer to family for help with child rearing, etc…. I also don’t see a fundamental change anytime in the opinion of younger people that there are other ways to invest money and less of a desire to lock themselves down to a particular location. Too many tempting options like crypto currency that didn’t exist 10 years ago. Plus with online trading it’s just much easier to dabble in stocks. Besides, these other options are considered “sexier” than boring real estate. If I had kids, I would definitely recommend they spend a couple years in NYC or a similar large metropolitan area and explore the diversity and culture it offers. But I would strongly recommend they rent, not buy. Owning property in these cities can definitely feel like an albatross unless you truly enjoy living in that city and everything it offers and you’re not really considering moving anywhere else. That’s just my two cents.

I have zero sense for SF or LA or Toronto. But from what I can tell, the appeal of living in NYC does not seem to have taken a permanent hit after COVID. What I do sense, however, is an age shift. I sense a marked down tick in people in their 40’s and 50’s, and a marked up tick in people in their 20’s and 30’s. If you look at vacancy rates, they are low as ever. If you look at rents—even in, or especially in, the studio & 1BR market—their increases are perfectly robust. So I don’t sense a decrease in demand for living in NYC. Just a shift.

One thing I have concluded in life is that momentum and “number go up” herding is innate to mankind. No amount of education, history, etc. can seem to shake mankind out of this repeated cycle of behavior. So while RE may currently be “boring”, it certainly wasn’t ~20 years ago. And stocks were generally considered “goes sideways” and/or a good place to get fleeced. Now, no one under the age of 40 has experienced anything other than “US stocks go up” in the investing lifetime. And if you include older people who avoided stocks post-2000, piling into RE instead, but then found religion in 2018 or whatever, that means few under 50 has ever experienced anything other than “number go up”.

I don’t think there’s any kind of cultural shift here other than time-honored momentum & herding. If NYC prices were half, I would hope you’d tell the youth to buy not rent. IMO price is the number one issue that makes RE an albatross, everything else is noise.

Nada, You have some really valuable insights in this thread. Of course, me being long real estate may be tempted to call NYC real estate is going up. Another human instinct.

——
One thing I have concluded in life is that momentum and “number go up” herding is innate to mankind. No amount of education, history, etc. can seem to shake mankind out of this repeated cycle of behavior.

>> Of course, me being long real estate may be tempted to call NYC real estate is going up. Another human instinct.

Well, it quite natural for people to think assets they own for investment purposes are going up! (Or will yield.)

I’m personally not seeing it, not in the immediate term. Not really in my 5-10 year outlook as the expected case either.

- Fundamentals poor. 30yr mortgage rates exceed cap rates by at least 2% across the various segments. Hope for ZIRP & QE to swoop in and save you is ill-founded, just like (IMO) QE-forever assumptions underpinning 3% mortgage rates were.

- “ZIRP-forever will come back” hope seems dead.

- “Number go up” herding is dead. Nothing more effective than 20 years of “number go sideways” to kill that type of herding. You need some catalyst for this to return, but no catalysts are at play.

- “Number go up” herding has other shiny numbers to play with, and it’s going strong. If history is an indication, it takes a good 5-10 years of “number go sideways” for herd sentiment to throw in the towel on one asset and move onto the next.

- Demographics unfavorable. The richest generation holding the most value-wise (60+) is also the largest generation. They will sadly be exiting their holdings over time; such is the nature of lifespan. The generation before them (40-60) has money to step in, but they are smaller and have been leaving post-COVID. The 20-40 generation is firmly dedicated to NYC, but they don’t have money yet. And whatever they have is more heavily directed toward any of a variety of “number go up” shininess (including, unironically, gold & silver).

- NYC doomerism. Mamdani will turn the city into a dystopian socialist landscape, all the rich people are moving to Florida, etc., etc.

What makes you think it’s finally going to be NYC RE’s time to shine once more? Everything I can think of is negative. Compared to the past 20 years of “number go sideways” outcomes, the only relative improvement on my list above is that “fundamentals are horrible” has merely become “fundamentals are bad”. Everything else is worse.

Nada, You make some very good points on why NYC real estate is not going up.

To add to that, once you add to the increased maintenance and taxes, price appreciation vs rent appreciation gap is not as big. Call it just half as big.

On the other side, alternative to NYC, burbs and the rest of country are far more expensive vs the past. Burbs are up 30-50%. Florida up may be 30% and to that add on increased insurance etc. You may cast that in terms on cap rates. Cap rates in NYC are almost better than other locations at $1mm and more price.

Then there is wealth transfer to under 40.

But as you say the herding can go on for a long time and it may continue. I have no expertise on calling the cycles and that is why I find your thoughts very valuable.

Look at this chart (works only on computer not mobile) for Summit which is an alternative to Manhattan, Prime BK. Up 50% since pre-covid. Basically burbs are not that much of a discount any more.

https://www.zillow.com/home-values/27319/summit-nj/

I agree with what you’re saying, but is it really going to help?

Sure, the fundamentals went from horrible to bad in NYC while going from decent to bad in the burbs. The “number go up” crowd may just look at that as an explicit reason to buy in the burbs rather than NYC. And the fundamentals crowds may look at that and say, “So you’re telling me Space X for $1.5T on earnings of $8B and growing is a great deal just because Tesla is $1.5T on earnings of $4B and falling?”

I have to do a quick comparison nyc burb samples vs nyc good school disctrict cost of housing adjusting for transportation cost but not commuting time cost. The tricky portion in Manhattan is pesky coop boards in good school districts.

Of course, one could compare condo prices to suburb prices but that leaves out a lot of housing choices viewed as a percentage. Then there is a judgement call about how much more space do you need in suburban homes vs NYC apartments. I think only 30-35% more to account for staircases, hallways and a general lack of amenities close to you etc for 2 or 3 bed room basic luxury apartment 1200-1500 sq ft apartment. But people realistically want 70%-100% more to compensate for commuting hassle. Call it 2000-2500 square foot good house in NYC suburbs. So it is easy to poke a lot of holes in the analysis or make up the numbers to suit your preference.

Ah. Summit may actually more expensive than UES 1800 sq ft 3 bed coop and you have to manage most of the home infrastucture management yourself. Not that many choices available in Summit. Realistic rent for this probably 10-12k if you can find one for rent.

https://www.zillow.com/homedetails/25-Dogwood-Dr-Summit-NJ-07901/40065311_zpid/

Interesting that the Summit house has not kept up with the 50% inflation since its 2008 sale either. At the asking price, it’s 42%. I imagine that’ll turn into the 30-something percent by the time it sells. Arguably inflation-matching once you account for degradation of 2008 renovation.

>> Then there is wealth transfer to under 40.

I think this is overblown. As discussed earlier this month, the older generation does not really have unusual amounts of wealth on a GDP-adjusted per-capita basis. Still, the donor-to-recipient ratio is higher than past generations. But not by huge amounts. Boomers were being birthed 33% above the trend-line. That's something, but it's not ginormous.

I also think one should consider the relatively dismal levels of wealth accumulation by households. Even in the highly inflated state of the world, after 40 years of income and 50 years of time to grow wealth, the average wealth per Boomer is only $1M. To put that in perspective, if you saved just 2.5% of GDP-per-capita in each year for the first 40 years since 1976, put it into the market, and kicked up your feet, you'd have $1M today. In current terms, that's just saving and investing $200 per month.

I'm guessing the proverbial $1M is going to get whittled down to a few hundred thousand: grannie gotta eat! By the time it she passes, grannie no longer needs a home and the kid is a 50-year-old grown-ass papa. Papa's already got a home! Papa is then going to play rear-view mirror with his kid. "You know, son. Back when I was your age, around 25, grannie insisted that I should save up a few years and buy an apartment in NYC because they do nothing but go up. Well, I did. But as we all know, they didn't go up at all, and I've been spending the past 20 years sinking so much cash into payments that I can barely manage saving $200 per month. Now as we all know, stocks do nothing but go up. If I had put $400K into the market 20 years ago instead of buying my money pit, even at the worst time just *before* the crash, I'd be sitting on $3M. As we all know, grannie was loopy before she passed way, and by gosh, when I think of it now, she was probably loopy back then. She even admitted that telling me to buy NYC RE was a mistake, having seen what stocks did. So I'm gonna take the $400K grannie left, and I'm gonna invest in stocks. But for diversification and to prove I'm not going to make the same mistakes as her by ignoring you, I'm going to add some crypto and gold and silver. Because as everyone knows, these things do nothing but go up."

Thus the cycle continues.

Ha. Good one.

On average, wealth may not be higher than in the past. NYC under 40 may be subset of people who parents ar wealthier. There is certainly more concentration of wealth at the top. And coastal wealthy seems to have fewer chidren.

On Summit, so the take away is Summit (perhaps in general suburbs over 15-20 years) went up by inflation and NYC mostly flat.

May be the kids are buying in suburbs
https://nypost.com/2026/03/27/real-estate/1-in-4-nyc-suburbs-now-cost-more-than-1m-to-buy-in/