American Dream Disclaimer: In Select Locations Only
Respectable housing has become completely unaffordable in certain, supposedly-more-desirable parts of the U.S.
In 1972, my dad, who immigrated to the U.S. as a young adult in the 50s, purchased a two-bedroom, one-and-a-half bath home with a guesthouse in North Hollywood, Calif., for $25,000.
Today, according to Redfin, a comparable property (three bedrooms, one bath) located just a few blocks away from that home is listed for $649,977.
To afford this home, someone would need $130,000 saved for a down payment of 20%, and be prepared for an approximate monthly payment of $3,332. Even if the buyer splits that with someone, they’d be spending $1,666 a month on their housing – for a place with a shared bathroom!
Last week in his column, Editor-in-Chief Michael Ogden declared the costs of higher education as our national emergency. Coming in second place, I would argue, is the fact that respectable housing has become completely unaffordable in certain, supposedly-more-desirable parts of the U.S.
Real estate is one of the wisest places to invest your money, but that investment strategy has drifted out of reach, especially for millennials, who may in fact have little debt and worked professional-level jobs since graduating college but still can’t afford a home. Sure, homes are affordable in some (mostly rural or medium-sized) U.S. cities, but should someone who has a family, long-term friendships, a community and a job in California uproot to Georgia for the sake of housing affordability? Maybe, if they feel it’s worth those sacrifices, but in many cases, they’ll choose to stay put and continue to rent, share their space and expenses with others, or even live with family.
My dad’s accomplishment of purchasing that North Hollywood home at 34 (the age of many millennials today), and holding onto it as a rental property, generating an excellent source of passive income over the years (more on rental properties later), would be considered an impressive feat in 2019’s economy. Especially for an immigrant, who is likely to face their own set of financial accessibility challenges. It’s become harder to achieve the American Dream, and here are just a few facts that caught my eye in the news recently to back that up:
- According to a CNBC article from last summer, the percentage of millennials who were homeowners between the ages of 18 and 34 was 37%, about eight percentage points lower than Gen Xers (45.5%) and baby boomers (45%). The reasons why fewer millennials become homeowners include student loan debt, delays in marriage/starting a family and renting for longer in pricey cities, hindering their ability to save for a down payment.
- A report released last month from ATTOM Data Solutions said median-priced homes were not affordable for average-wage workers in the first quarter of 2019 in 335 out of 473 (71%) counties that the company analyzed. Places where median-priced homes were deemed unaffordable (those “supposedly more desirable” spots) include the Los Angeles area, Phoenix, San Diego, Miami and Orange County, Calif. Median-priced homes were affordable in Q1 2019 for average-wage workers in cities including Chicago, Houston, Detroit, Philadelphia and Cleveland. Plus, ATTOM found that homes in 49% of U.S. markets are now less affordable than their historic averages.
- This month, CBS News reported only six out of 10 millennials earn enough to be considered middle class, compared with seven out of 10 baby boomers at the same age, according to a report from the Organization for Economic Cooperation and Development. Middle class means earning between 75% and 200% of a nation’s median income, which equals between $23,416 and $62,442 for one worker in the U.S., according to the OECD.
Out of my millennial peers, those I know who own homes generally fall into two groups: 1) Those who live somewhere in the country where home prices are low, and it makes more financial sense to buy there than rent, and 2) Those who live in one of the higher-priced markets, chose to put down roots there early (as opposed to experiencing life in multiple cities or traveling long-term, as I have), and received financial help from a partner and/or their parents. In other words, it’s not attainable for everyone – most millennial homeowners encountered luck, either with their location or by having a close relationship with someone who was able to help.
For those who are not looking to settle in one home indefinitely, there’s another approach to homeownership – purchasing rental property either locally or out of state, which is something I’ve toyed with in my head for a while after witnessing the flow of rental income the $25,000 North Hollywood home has brought in over the years. The idea sounds simple and brilliant at first: Invest your money in a down payment on a property, find tenants, collect rent checks every month and use the rental income to pay the mortgage, taxes and maintenance.
When another report came across my desk last month titled “ATTOM Data Solutions Ranks Best Counties for Buying Single Family Rentals in 2019,” I dove in. It analyzed home prices, rents and wages in 432 U.S. counties to determine the counties with the highest rental returns. The winners: Baltimore City, Md., Bibb County, Ga. (the Macon metro area), Cumberland, N.J. (the Vineland-Bridgeton metro area), Winnebago, Ill. (the Rockford metro area) and Wayne, Mich. (the Detroit metro area).
Do I have any connections to those areas, or do I wish to? Nope. But millennials who have landlord aspirations in any of those places may be in luck – if they can stomach the years post-purchase. As landlords of a six-unit property in Portland, Ore., my parents have reported horrors such as a former tenant leaving behind a boa constrictor, another abandoning all their belongings in a unit including two cats, and middle-of-the-night phone calls about parking spot disputes. So, buying a rental property may not be the best investment idea after all, even if it’s local.
Millennials clearly face more barriers to homeownership than previous generations did, and it remains to be seen how Gen Z (currently aged nine to 22), will fare in their pursuit of the American Dream. I’m hoping to get a first-hand sense of Gen Z’s attitudes toward managing money in their adult lives next week – I’ll be volunteering at a Bite of Reality fair at a local high school in Portland and plan to make the experience the topic of my next column. Stay tuned!
Natasha Chilingerian is managing editor for CU Times. She can be reached at nchilingerian@cutimes.com.