S2E44 – Millennials vs. The Housing Market: Who Wins

Navigating through the complex journey of the current housing market, particularly for millennials, can feel like an uphill battle. In today’s deep-dive, we explore the historical context of homeownership rates, the profound psychological and social implications of owning a home, and the tangible roadblocks standing in the way of unlocking that front door. From the aftermath of the 2008 financial crisis to the modern-day struggles amidst rising prices and challenging mortgage rates, we unravel the various factors at play in the current market. But it’s not all doom and gloom! Stick with us as we navigate through potential future market changes, and unpack strategies and mindset shifts that could pave the way to your future home as we help you become The Educated HomeBuyer

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Connect with me 👇 Jeb Smith (huntington beach Realtor/orange county real estate) DRE 01407449 Coldwell Banker Realty ➡I N S T A G R A M ➳ https://www.instagram.com/jebsmith ➡Y O U T U B E ➳https://www.youtube.com/c/JebSmith

Connect with me 👇 Josh Lewis (Huntington Beach Certified Mortgage Expert) DRE 01209148 Buywise Mortgage M:714-916-5727 E: josh@buywisemortgage.com ➡I N S T A G R A M ➳ https://www.instagram.com/joshlewiscmc ➡Y O U T U B E ➳https://www.youtube.com/c/buywiseborrowsmart

📩 – info@theeducatedhomebuyer.com

For Show Notes, See Below 👇

[00:00:00] Jeb Smith, Huntington Beach Realtor: In today’s episode, we’re going to be addressing the question that a lot of potential homebuyers have at the moment. And that’s will I ever be able to afford a home? So Josh, you and I talk about this question all the time because of housing affordability, because of interest rates, all of the things that make up affordability.

So when I asked that question that buyers have, what comes to mind? 

[00:00:33] Josh Lewis, Certified Mortgage Consultant: Will I ever be able to buy a house is a thought that we’ve seen cycles. We’ve seen cycles throughout time and we are definitely at a point in the cycle where the affordability numbers are making people ask that question.

Like we look in the comments to these videos, to the live show, to your videos. People will look, they’ll watch the video, which indicates one thing, they’re interested in buying a house. But then they comment 

“I am coming to grips with the fact that I will never be able to buy a house.”

“I’m questioning, will I ever be able to buy a house?

“I don’t see how I’m going to ever be able to buy a house.”

This show isn’t really about the number side of it. We’ve gone through the numbers and multiple other episodes. The affordability is undeniable. Other than 1982, we are at the worst level of affordability we’ve ever seen. 

So in 1982, home prices were much better. Interest rates were much higher. So the payment to income was even more out of whack than it is today. But where we’re at, it’s a valid and important thought. And really the reason for today’s episode is to kind of go in a different direction. We’re not going to talk about the numbers so much today and more of the mindset.

Once you conclude that you cannot do something or you never will be able to do something, You are unlikely to achieve it. And what we’re here to talk about today is that this is cyclical. Things change over time. It may very well be true that you are not able to own a house today, but do not give into this belief that you will never be able to buy a house.

[00:02:03] Jeb Smith, Huntington Beach Realtor: Josh, what’s that saying? Whether you think you can or you think you can’t, you’re probably right. So the idea here, right? Becoming the educated homebuyer. Is first one, believing that you can do it, wanting to do it. And we know, we’ve talked about the numbers, Josh and I don’t want to beat those numbers in, but at any point in history, around 62 percent of Americans choose to become homeowners.

So You know, different times in history, 62 percent of Americans own a home. And everybody that owns a home now aren’t the same people that were 10, 15 years ago, right? Things change. I was having a conversation this past weekend and one of the things that came up was the idea that wages haven’t kept up with home prices therefore that has to correct. 

So, let’s talk about some of the factors, psychological, social and all of that stuff. And then we can kind of talk about some of the other things that help out with affordability. What could change, what could change [00:03:00] the paradigm, if you will, to give people out there that do believe, that want to be homeowners that, you know, that opportunity, what they can do now, what they can focus on, where their mindset needs to be, because it’s tough. There’s not an easy solution to the problem. 

And I think that’s the most difficult piece, right? Everybody wants the get rich overnight. I want to become a homeowner tomorrow. In this market, it’s probably not going to happen. So let’s talk about some of those things, starting with psychological, that kind of make up this mindset. 

[00:03:32] Josh Lewis, Certified Mortgage Consultant: And let’s clarify that 62.9% is the lowest homeownership percentage that we’ve seen in the United States since they’ve tracked the numbers back to 1965. And I would bet it was higher before then because homes were much more affordable. 

But when we look at that 62.9% percent up to almost 70%, we had some terrible policies in the 90s that said, if homeownership is good, more homeownership is better. So we pushed people into homeownership who were not prepared to successfully do it.

But over the long haul, 66 to 68 percent of U. S. households choose to become homeowners. And that is unlikely to change going forward. The psychological component of this is As much as we would like to say we’re not animals, we are highly evolved human beings. 

There is something in our core that when you get to a certain point in life, you have met a significant other, you have established a career and your ability to provide for yourself and your family. Many people, although birth rates are lower than they’ve ever been, still choose to want to have a family. They want to have a nest for that family unit. That is unlikely to change going forward. So when we look at it, I don’t see a reason for the numbers to come down unless we are at a new normal.

And I’m always very wary of a new normal where home ownership is going to remain this unaffordable. So it will correct, it will change. So it may very well be again that today it is not realistic for you, but you have to think in terms of psychologically.

I am in control of my future. The things that I can control, which I don’t control interest rates, I don’t control home prices, but I do control my career advancement, my savings, my investing, my credit, where I’m willing or wanting to be located. 

So that whole concept of personal agency, as soon as you give that up and you say things outside of my control, home prices and interest rates are dictating my future to me. I must give up something that 65, 66 percent of Americans historically have chosen. You’re setting yourself up for a lesser future versus saying, I want to become a homeowner. Today that is not realistic. So what do I need to do to prepare going forward? 

Because again, the psychological elements are not going to change. Jeb, for me on the mortgage side. [00:06:00] We’re more numbers people. We don’t get to see the psychology and emotions and the feelings. You get out and get to handover keys when people buy their home. Talk to us a little bit about it from that perspective of what you see from buyers. And do you see that changing in the future?

I just, I don’t, I don’t see a change in that. 

[00:06:17] Jeb Smith, Huntington Beach Realtor: No, before we dive into that, Josh, let’s talk about cycles because I think that’s important cycles in the market, right? It’s that, if it bleeds, it leads type of headline that’s out there, right? Whatever grabs your attention is what people read and oftentimes the information in the article doesn’t even support the headline, but a lot of it doesn’t really have any meat to it. It doesn’t really go into detail of why things are the way they are. 

But let’s just talk about housing affordability, right? Sitting near all time lows, interest rates at the moment, near 23 year highs. I think we have mortgage demand, mortgage applications at the lowest level we’ve seen since the 2000. So a lot of negativity out there in the housing market. But the first thing you and I talk about is let’s go back to. 2010, 2011, right after the bust, what was being said in the market at that time coming out of a crash with regards to who would be buying homes. Is housing ever going to be able to go up again? Are we going to reach new peaks? That sort of thing. 

[00:07:16] Josh Lewis, Certified Mortgage Consultant: Absolutely. That is a really instructive point in time to look at because home prices had come down. The government was already stepping in pushing interest rates lower. So affordability was at the highest level we had seen in probably 20 years, but people were saying millennials are never going to be able to buy. 

They’re psychologically scarred from seeing their parents go through the mortgage meltdown, many of them losing houses. They don’t have the same emotional attachment to housing. They don’t see it as a wealth builder. They see it as a wealth destroyer.

They’re coming out of college into a bad job market. They’re not getting the wages that previous generations had and it’s just not going to happen. And they have student loan debt, which funny it’s quaint, we look back 13 years, the student loan debt that those students came out with very minimal relative to what we’re seeing now.

Not downplaying it. It’s all relative. If you came out with a significant debt load at that point in time into a bad job market, that’s how it felt. But literally there was headline after headline saying, we’re never going to see 65, 66 percent homeownership rates again, but within a decade we got back to that point because there is something internal about us that we want to own homes.

And to your point, what’s cyclical about it? That cycle was different in terms of the economy wasn’t good. So the ability to earn and buy that property wasn’t what it had been. And then the debt burden of student loans and then the psychological burden of what had just happened with the housing market meltdown. I like to go back and let’s look at 1982. 

1982 is more similar to today and first of all, Jeb and I are not boomers. So no one listening say easy boomer. We are way too young to be boomers. Jeb is almost an old millennial. He’s either a, 

[00:08:55] Jeb Smith, Huntington Beach Realtor: I’m a year off. 

[00:08:57] Josh Lewis, Certified Mortgage Consultant: Really close there. But when you look back to 82,[00:09:00] I will never be one of those people that says to you, “ah, rates are great. You had to take a 17 percent adjustable in 1982. So your seven and a half 30 year fixed is awesome.”

It’s all relative in terms of affordability. Why was affordability worse then? Home prices were much more affordable but rates were absurd. More than double where they are right now. So from an affordability perspective, and what do we mean by that? Percentage of household income that has to go to a housing payment. It was worse then, than it is now.

In practical terms, very similar, there’s not a huge difference, but we probably had a reason to be a little bit more hopeful then if you believed interest rates would start trending down, you can see a magnitude of decreases in interest rates much more quickly than you can in home prices. 

Now, again, without going so far into details and the economics of it, you and I have broke down in other episodes and the live show every week, why we don’t see a big dip in home prices coming. A correction could happen but what we’re hopeful for going forward would be the same thing. A moderation or a normalization of interest rates. 

Like right now, that’s the 24 million question. In 12 to 36 months, what is normal? Is seven and a half percent normal? I don’t believe so. We also know we’ve kind of defined that two and a half, three, three and a half, that’s not normal. 

So what is that new normal going forward? If it ends up being somewhere around five, five and a half percent affordability is going to be much better. Now, I said better, I didn’t say good. It’s not going to be where we have these high levels of affordability where almost everyone can go out and buy.

That’s why we saw massive volumes of home sales during COVID. Because prices relative to today were much lower, interest rates much lower, so affordability was very high. Jeb, you probably remember on the live shows, we had people every week showing up saying, “Oh, this is crazy. Home prices can’t go this high.”

And you’d pull up the chart and you say, affordability is a great level right now. Homes are more affordable than they were 18 months ago. You didn’t say 18 months ago, home prices had to come down. The price of a home is not important to buyers beyond the extent to which it makes it affordable for them.

So if they’re making a great income, don’t care about the price. If they have a really low interest rate, don’t care about the price. They always care about the monthly payment. And right now those monthly payments are brutal. 

[00:11:17] Jeb Smith, Huntington Beach Realtor: No, absolutely. A moment ago, you ask about the emotions of someone buying a house, what I see out there, and I want to talk about it, but right after you hit the like button. If you find any value in this video at all, and if you want to stay updated on everything real estate related and become The Educated Homebuyer, do us a favor and hit that subscribe button. All right. 

So people buy emotionally and justify logically, right? And no truer words have ever been spoken when buying a home. It’s an emotional process for many different reasons. It’s a large purchase. There’s a lot of money being put into it. There’s decisions, there’s pros and cons. There’s two people trying to come together in many instances and find something they like.

It’s picking the school district. Picking where you’re essentially going to be for an extended period of time. That’s [00:12:00] an emotional thing. To think that, Hey, listen, I’m buying this and I’m more or less kind of locked into an area, into a property for X amount of time. And that’s really the way you should be thinking about it to some extent, having that longer term time horizon. 

But emotions, people, a lot of people go back to their childhood. Hey, I had the house with the white picket fence. This isn’t me just so you know. People think like that, the house with the white picket fence, they had the swing in the backyard. That’s where they grew up. They shot hoops in the driveway and they’re trying to recreate those memories for their own family. For their own kids. And that’s an emotional thing. 

On top of the idea of buying a home creates this foundation, allowing you to essentially build your family off of. The school district that you send your kids to and just all of these different elements that go into home ownership, make it this emotional decision.

And I see it every time. I see people trying to talk themselves into things. I see people trying to talk themselves out of things. I have conversations with somebody one day. They’re super ec static about moving forward. The next day they’re not. It’s like cold feet, warm feet, if that’s even a thing.

And kind of going back and forth with that process. It’s emotion. And then what you throw higher rates into it, affordability being at lower levels and thinking, “Hey, if I would have done this a year ago or two years ago, man, I would have been in a much better position.” I’d be just like Josh. If I had, not set on the fence, if I had put my emotions aside, I could be in a much better financial position.

So all of these different things play into that home buying mentality. And if you don’t have the right mindset and if you’re not thinking the right things to start with, those things can mess with you. Especially if you’re the person that did wait and now things are higher than you thought they would be.

Payments are higher than you thought they would be. You can’t afford as much home as maybe you thought you could. Josh, you deal with that, right? You talk to people all the time. So one of the questions you ask people, I hear you ask it is, “Hey, have you been looking at homes and what’s the price point of homes that you think you would be interested in?” Something along those lines.

And I think that’s an emotional process, right? Especially when you come back to them and say, guess what? You can’t afford nearly what you think you might be able to. And so what we’re here to do is kind of talk about those things and then also talk about the things that are affecting affordability, right?

Because that’s really what needs to improve in order for more people to become homebuyers. Outside of fixing the mindset. That’s step one. Once you fix the mindset, how do more people become homeowners? Well, part of it is rates. And then we’ll talk about the other two legs of that stool here in just a minute, Josh, but emotions what comes on the mortgage side?

What do you hear? People say that essentially almost, you can almost tell from the get go, this person’s not going to be a buyer right now. 

[00:14:57] Josh Lewis, Certified Mortgage Consultant: People will ask, Hey, things must be really slow. You’re just sitting [00:15:00] around the office staring at each other and you see me every day. No, the answer is the phone still rings at a very similar rate to it did two years ago. The difference is many of the people that we talked to just cannot qualify. And some of those, the worst calls are the folks that say, Hey my rent has just continued to go up and up. I can’t afford it. I have to buy something.

And I don’t know of too many places left in the U S where owning is cheaper than renting. So if you’re not capable of renting, you’re probably not gonna be able to buy. And then I have another class of folks that we talked to that we go through it and they absolutely do qualify. But then when you tell them the payment, decision is just, I’m not willing to do that. 

I could. I understand that you’re telling me I can qualify for that mortgage and the lender wouldn’t do that if it was a guaranteed foreclosure or default on the loan. It’s going to crimp my lifestyle to a point that I don’t want to do that. So kind of going back to mindset and emotion.

I think that first off, whatever you’re feeling as a prospective home buyer in this market, totally valid. Totally okay. No one should tell you, you shouldn’t feel that or that’s dumb.. Whatever this market is making you feel, that’s reality. What we’re here to talk about, which today’s kind of a squishy touchy feely, more emotional episode here.

[00:16:13] Jeb Smith, Huntington Beach Realtor: Right. Our wives are really going to love this, Josh. Us getting emotional. 

[00:16:17] Josh Lewis, Certified Mortgage Consultant: We’re very in touch with our feelings. We are regularly told that. In touch with our feminine side, I believe is what they say.

That is really what this is. You can’t really control the market. We talked about, you don’t control home prices. You don’t control interest rates. To a degree you control your income, but there’s a degree of lack of control there as well. So what we want to talk about is, you absolutely control your mindset. You control your decisions on a daily basis. And you control what comes in the future by how you act today.

If you just despair of the horrible affordability and conclude that you’re never going to be able to buy a home, as Jeb said earlier in the show, that will become a self fulfilling prophecy. An author that Jeb and I both really like in one of his books, he says, I choose to frame things this way when I’m having a bad day, he says, “I tell myself things are always working out for me even if they don’t seem to be at the time.”

Silly example, yesterday, we had a countertop put on a new vanity in one of our bathrooms. There was an error in the measurement and it was sticking out too far at the front and the side. Well, that was bad. They had to take it away. They had to go back and do work on it.

But because of that, we also looked and said, Hey, didn’t like the look of that sink in there. And we were able to get a different sink and they recut that hole and everything worked out. They came back today. They put it in. So yesterday it was despair. Today it was actually a good thing for us because we got the right sink in there.

Again, silly example, especially in the scope of renting versus becoming a homeowner. But when you take that mindset that, yeah, bad things happen all the time, but in the moment we only see the bad thing. A lot of times as something unfolds, think back to your college boyfriend or girlfriend. You’re like, Oh my God, they broke up with me. This is the end of the world. I’m never going to be able to get through this. 

And then [00:18:00] someday you end up with a spouse. You’re like, that was the best thing that ever happened. Or that was never going to work. That was going to be a horrible thing. A million different examples.

So really Jeb, because we’ve covered it in depth, we can go through the affordability piece, but really you control almost no element of the affordability other than your income. And how much of that do you control? You control being an awesome employee. You control doing your work well. You control educating yourself, career advancement, and sticking up for yourself, asking for more, all of those things. 

So you can maximize your income. But the other two, you as an individual have zero control over home prices, zero control over interest rates. So what can you control if today home ownership isn’t a reality? And if you’re listening to the show, there’s lots of people out there that just aren’t interested. If you’re listening to the educated home buyer, I’m under the assumption that you’re interested in becoming a homeowner and you may feel as though it’s not possible today.

So what are the things under your control mindset wise, action wise that you can do so that someday, whether that’s one year from now, five years from now, 10 years from now, when those cycles play out and there’s a better entry point where affordability works out for you and your family that you’re in a position to take advantage.

[00:19:16] Jeb Smith, Huntington Beach Realtor: Yeah. There’s a quote by Jim Rohn that I love and it’s “change your philosophy, change your life.” Right. And it’s the idea of changing your mindset and with that change will happen, right? You have to become the change you want to see, right? You hear that saying all the time. 

And so, Josh, if I were looking to buy a house right now what I would be focusing on is trying to generate more income, right? We know that there’s nearly nine point something million job openings out there at the moment. People are looking to hire well qualified employees. If you’re in a position where you’re growing maybe outside of your current job, but there might be an opportunity out there.

That’s something to consider, but at the same time, not even necessarily growing your income, that’s important and I think an obvious point. But you can also cut expenses. Budget, do things in the current environment, try to cut fees that aren’t necessary to have more of that income that you can use towards down payment.

We’ve talked about that before and down payment, isn’t really a piece of the affordability puzzle, so to speak, it’s kind of a three legged stool between home prices, interest rate and wages, but down payment does affect affordability. The more money you can put down, the lower the payment is going to be.

What I will say is interest rates affect your monthly payment more than the down payment, which is kind of a crazy thing to say. But with that, I’d be focusing on income, I’d be focusing on down payment, but I’d also be focusing on my credit score, Josh, because again, credit score isn’t an affordability piece, but it does affect the interest rate and interest rate is really the key component here to really change affordability I think. 

And we both are under the belief that we’re going to see lower rates in [00:21:00] the future. Six months, 12 months, a year from now, hard to say. Well I did say six months, 12 months, a year. 12 months is a year. Two years, whatever number you want to say.

I do believe, rates are going to go down. But if your credit sucks because you’re not doing everything else right, interest rates going down, you don’t really get the true benefit there. So focusing on credit score and the other pieces there will help out with that affordability piece of the puzzle, Josh.

So, we can dive into this. We can link to another episode where we talk about this in more detail. And I don’t want to harp on it too much. But the idea here is really built around philosophy and believing that you can and then being essentially ready when the opportunity does present itself.

[00:21:43] Josh Lewis, Certified Mortgage Consultant: Here is what I think both of us are saying. If becoming a homeowner is not a reality for you today, that doesn’t prevent you from becoming the person who can be a successful homeowner. The person who has a savings account that would allow them to make a down payment, the person that has a credit score that will allow them to qualify and qualify for the best terms, the person who’s getting advancements and promotions at work because they’re putting in the work. Because they’re doing everything they can.

So that is really the perspective I wanted to take with today is just make sure that you are owning your future. We don’t control everything, but we don’t let circumstances dictate what can happen. And if you did all of those things and you never became a homeowner, you still would be in a better position because you’ve earned, you’ve saved, you’ve invested, you’ve had good credit.

You’ve had more opportunities in life because you did the right thing to build that foundation so that when the time comes, even if the time never does come, that you are that person who can successfully own a home. 

[00:22:41] Jeb Smith, Huntington Beach Realtor: No, and I think honestly Josh, that’s a good place to leave it. The show is really about Buying Right, Borrowing Smart and Building Wealth and that wealth doesn’t necessarily have to mean a home.

It can mean other things. And wealth for some people doesn’t even mean money. It could be building something within a family that is a foundation for something else. So it’s really mindset and with that mindset, hopefully you get the motivation to become a homeowner or whatever it is you’re trying to accomplish out of this with doing the things that we’re talking about today.

So with that said, we come up with these episodes, you ask questions like this, you want answers. So if there’s something we haven’t covered, you want us to dive into in more detail, do us a favor, send us a message, drop it in the link below.

But until next time, we appreciate you being here. Adios 

[00:23:26] Josh Lewis, Certified Mortgage Consultant: amigos! 

[00:23:27] Jeb Smith, Huntington Beach Realtor: That’s my favorite part of the whole show.


Thanks for listening to The Educated Homebuyer. Want to connect with us or to a local expert in your area? Please reach out at TheEducatedHomebuyer. com slash expert. If you found any value today, please be sure to rate and review us on your favorite podcast platform. In addition, we ask that you share it with your friends and subscribe to us on YouTube, and make sure to follow us on social media.

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