← So Money with Farnoosh Torabi
So Money with Farnoosh Torabi
1933: The Housing Affordability Crisis, Explained. Who Can Still Buy a Home?
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- [00:00]
Progressive Insurance Announcer
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- [01:31]
Farnoosh Torabi
So Money Episode 1933 the housing affordability Crisis explained who can still buy a home.
- [01:41]
So Money Podcast Intro
You're listening to so Money with award winning money guru Farnoosh Torabi. Each day get a 30 minute dose of financial inspiration from the world's top business minds, authors, influencers and from Farnoosh yourself. Looking for ways to save on gas or double your double coup. Sorry, you're in the wrong place. Seeking profound ways to live a richer, happier life. Welcome to SO money.
- [02:07]
Alex Gailey
On the financing side, there's definitely misconceptions and one of those, one of the biggest that I see and that we see in the data is that you need to have 20% down to home and we see that in our data. About a third of Americans believe that and that is just not the case. When the median price home is $400,000, it's unrealistic to expect people to come up with an $80,000 down payment. And a lot of people write themselves off and just think oh I can be. I don't have 20% down.
- [02:38]
Farnoosh Torabi
Welcome to so Money everyone. I'm Farnoosh Tarabi. Happy Dr. Martin Luther King Jr. Day here in Montclair. I was reminded that Dr. King visited our high school back in 1966 and there were protests. There's a picture of him that I found and it was quite an inflection point in our town that year there was a big lawsuit that to the desegregation of our schools. My daughter is actually entering a poetry contest for the best poem dedicated to mlk and that's due at the end of the month. So fingers crossed for my daughter. She's really into it, so it's really cute to watch.
- [03:20]
Alex Gailey
All right.
- [03:21]
Farnoosh Torabi
Now onto today's show. If you've been scrolling listings at midnight or 3 o' clock in the afternoon, I mean, listen, who isn't doing this? And you're doing the mental math on mortgage calculators and wondering how is anyone actually buying a house right now? You're not alone. My guest today is Alex Gailey. She's a personal finance reporter at Bankrate and she's been digging into the numbers behind America's housing affordability crisis. Her recent reporting found something jaw dropping, that in most of America's largest cities right now, homeownership is very much out of reach. It's in fact a luxury item that many cannot afford. A new bankery analysis of real estate and income data shows that anyone earning the median US Income find themselves priced out of three out of every four US Homes on the market. Let that sink in. Price out of 75% of the market. In this conversation, we're going to break down what is actually driving this affordability squeeze from the lock in effect of homeowners clinging to 3% mortgages to the widening gap between incomes and housing costs.
- [04:30]
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To the new reality that many buyers.
- [04:32]
Farnoosh Torabi
Are spending closer to 40 plus percent of their income just to make the monthly payment work. And that's not even including things like taxes and insurance and maintenance. Alex also shares where in the country buyers still have a real shot. What she's hearing from successful first time buyers about the real keys to getting in and why. Renting. Yes, renting can be a smart wealth building tool when moving would make you otherwise house poor. Here's Alex Gailey. Alex Gaily, welcome to SEW Money.
- [05:10]
Alex Gailey
Well, I'm grateful to be here. Thank you for having me on. You know, I've been covering personal finance for about seven years now and housing is one of my favorite topics, especially since it's become one of the biggest affordability challenges that Americans have faced.
- [05:25]
Farnoosh Torabi
Yes. I love your work. And actually, I was reading one of your articles on the topic on Bankrate.com about housing and how 75% of those who consider buying a home part of the dream, they're priced out. That's according to Bankrate data. Let's talk about that, because we, we threw around this term of, like, in affordability, but you've really put some numbers to it. And, and I think this might be more than people would have thought. Like, three out of four Americans, really? Is that where we're at?
- [05:58]
Alex Gailey
It is where we're at. And I think we have to zoom out and look at the big picture, but then I think we also have to look at what's happening in local markets. And yeah, when you do zoom out and you stack up mortgage payment calculations against inventory data across the country, we see that that typical U.S. household can afford 75% of the homes in the market. Now, we see that number tend to shift depending on where they live. So I think what this study and analysis shows is that the definition of affordability looks really different depending on where you live. And really, this comes down to, at the core, a supply issue. And you see that across coastal markets like New York, Miami, Los Angele, Diego. I mean, these major hubs for jobs, these are places where, you know, the typical household in that market is virtually priced out. I mean, fewer than 2% of listings are affordable to them. And then when you move more into the middle of America, that's where you start to see a path to home ownership in a more realistic way for Americans.
- [07:05]
Farnoosh Torabi
Yeah, I, this isn't a question for us, but, you know, just extrapolating on that, my thought bubble is like, during COVID you know, I was one of the many who bought a home, and we, we banked on these extremely low, historically low interest rates. And, you know, where are we going to go? Right? We're, we're, like, living in these homes for better or worse, A lot of us for worse, because we're not happy. We've. There's been that story. You know, Americans bought these homes during COVID They, they underestimated, like, actually the reality of being a homeowner, or they've grown their family and the house is too small, and they have what's like these golden handcuffs, these golden mortgage handcuffs. And I wonder if that's what's leading at least in part, to the supply pressure. Like, people just aren't leaving and selling their homes because they're not sure where they can go that's more affordable or equally as affordable.
- [07:58]
Alex Gailey
Yeah, we call that the lock in effect. And that is certainly playing out in the current housing market. Has been playing out for years now. Golden handcuffs. I mean these people bought homes when mortgage rates were ultra low and they to give those mortgage rates up because mortgage rates now are in the 6% range and why would they want to give up 3% mortgage rates? So I think that has certainly made the supply shortage worse in a lot of ways in recent years. But I think we have to zoom out even further and think about how we've been building homes over the last decade really after the Great Recession. We've been chronically under building. A lot of builders backed away. They never really ramped up again. You know, zoning permitting laws have made it harder to builds, construction costs have gone up, there's labor shortages. So there's a lot of factors that contributed ultimately to us not building enough over the last decade. And really now we're playing catch up and it's going to take years to resolve this supply shortage and to see the market come into more better balance between demand and supply.
- [09:05]
Farnoosh Torabi
Let's talk about income versus housing costs. Your reporting shows about a 30, a $30,000 income gap between households earn and then what they need to have to afford the medium priced home. What is driving that gap the most right now?
- [09:25]
Alex Gailey
So I view it as a one, two punch. So prices have been rising way faster than wages since the start of the pandemic. That's really when the huge boom in the housing market started in 2020 when those mortgage rates dropped really low. So zooming out, home prices are up roughly 50% across the country over the last few years. And then wages are really only up a little over 20% since 2021. So that was the first punch. And then in 2022 came the second punch. So mortgage rates essentially doubled within a few months. So they started the year around 3% and then they climbed to about 6 and a half percent by the end of the year and even got higher at certain points. So I think you put those two together with tight supply that's been happening since the Great Recession. And then you basically end up with $30,000 gap between typical households actually earn and then what they need to typical home in the US well and part.
- [10:21]
Farnoosh Torabi
Of that affordability calculation the bank determines right there's that dti right debt to income. And historically we would say like try to spend no more than 30% of your income on all of your hopefully all of your housing related costs, that's including your mortgage or your rent, plus like the taxes, the insurance and maintenance. Are you seeing more and more Americans increasing that percentage? Are you seeing lenders become more flexible with the DTI just so that they can get more people into this housing game?
- [10:57]
Alex Gailey
Absolutely. I mean, today's buyers are spending a historically high share of their income on housing. And that can have real.
- [11:04]
Farnoosh Torabi
That's dangerous.
- [11:05]
Alex Gailey
Yeah, that can have real long term consequences for financial stability. A recent bank rate analysis that complemented our housing supply data found that that 30% housing rule that's been around for a long time and it's still a, it's still a solid rule, but it's increasingly just not really reflecting the reality of current market conditions. Crunch the numbers. And nationwide we found the typical household now needs to devote closer to 40%, exactly 43% of their income just to afford a medium price home. And so when I was reporting this, you know, I spoke with several mortgage brokers and realtors basically confirmed that they're seeing their clients are often, often spending well over that 30% of their gross income to own, particularly first timers who just want to get their foot in the door. And yeah, there is a lot more risk that comes to that. You know, if you're spending a large chunk of your income on housing that's a permanent line item in your budget, obviously there's less left over for savings, whether it's emergency retirement, childcare, college costs and all the things kind of stack up. But I think what concerns me the most is that it actually puts households at a higher risk of becoming house poor. And so I would argue that's one of the worst financial traps you can fall into because it's a huge financial commitment that you can't get out of easily. And I think that's particularly relevant for those middle income households who still want to become homeowners but are maybe willing to stretch their budgets further to do that.
- [12:37]
Farnoosh Torabi
I really appreciated in your article that you didn't downplay the benefits of renting. I think that part of what gets us so stuck in this, you know, this ambition to, to own, is that we don't even want to consider renting. It's not even an alternative because we've heard so often that that's quote unquote, money down the drain. And I think bankrate. I don't know historically where they stood on that, but lately it seems like, you know, not to say you're bullish on it, but that like you really do want to Address and share the, the potential benefits and the flexibility that can come with, with renting that sometimes we, we undersell.
- [13:18]
Alex Gailey
Absolutely. I mean, I just want to make it clear that renting is not a waste of money if it means financial stability for your household. So I think especially with the younger generations, the stigma around renting and the conversation with that is changing because you're dealing with a really tough housing market. And I think a lot of younger generations see value in actually in the short term, just having more financial stability and not letting FOMO of the housing market get the best of them and then again falling into this trap of becoming house poor. And I think renting for longer is becoming more common. Funny enough, despite affordability challenges in the housing market, we do see that majority of Americans still view owning as part of the American dream. We still see that that's true among younger generations. But the timelines around these traditional milestones are definite changing. So people are getting married later in life, they're buying houses later in life, they're having kids later in life. The median age of a first time homebuyer recently shot up to 40 years old. And, and that's fine, that's okay. There's nothing wrong with that. So I think, you know, younger generations are adapting to the market conditions and they're finding that they can build wealth in other ways, like investing in the stock market at an earlier age than those older generations maybe would have.
- [14:35]
Farnoosh Torabi
Yeah, I think as I think, I wonder if part of it is like homeownership feels more like we have more education around that than investing in the stock market. Although two are, you know, arguably very strong investing vehicles. You know, I wouldn't say owning your primary home is like an investing vehicle as it, like as we invest in the stock market. But I think that we as a nation, we really understand this narrative around owning homes or flipping homes or you know, investing in homes as a path to wealth. That's a story that we've heard more commonly and we see their shows around it, the investing stuff. I think increasingly now we're becoming more and more educated on it, but we have to catch up to that. And I think as some people are catching up to that, they're realizing, oh my gosh, this can actually build me wealth too. It doesn't require a down payment, it doesn't require, you know, paying property taxes. I can be passive and I can still build wealth. And the more we can get that message out to catch up with the message around, you know, investing in homes, I think is a really important job for me and for you and anyone else who's into investing. Like tell your friends about it because it's like one of the best kept secrets I think. Still not. I mean, less than half of Americans are invested in the stock market. If we really want to get down to it, 2026 is the year you.
- [16:00]
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- [20:11]
Progressive Insurance Announcer
This episode is brought to you by Progressive Insurance. Do you ever find yourself playing the budgeting game? Shifting a little money here, a little there and hoping it all works out well? With the name your price tool from Progressive, you can be a better budgeter and potentially lower your insurance bill too. You tell Progressive what you want to pay for car insurance and they'll help you find options within your budget. Try it today@progressive.com progressive casualty insurance company and affiliates price and coverage match limited by state law not available in all states.
- [20:43]
Farnoosh Torabi
Let's talk about affordability on a regional base on a regional level. So your report looked at sort of national trends, but also looked at some of the places, the pockets within America where affordability might be more attainable than others. Can you share what you found?
- [21:01]
Alex Gailey
Yeah. So there are places where first time home buyers and home buyers in general, they still have a shot. And in many of the cities in the Rust Belt, the South, the Midwest, around 40 to 50% of homes on those markets are still affordable to typical household. The two cities where typical households have the most options are Pittsburgh and St. Louis. And so you do see a lot of regional trends there. So the south is certainly doing a good job at building more than other regions in the country. And then you just have that affordability element that's attractive to many people in the Rust Belt in the Midwest. And I think what those places have in common is pretty straightforward. Home prices just haven't risen as sharply relative to local incomes. They're continuing to build those new homes, and there's just more supply available in relation to demand. So I think what those markets are showing us is that they're just in better balance in terms of supply and demand. And we do, I don't see that that's happening in a lot of the coastal metros, like across the west coast and the east coast. And those markets we're seeing that typical households are essentially priced out. I mean, when only 1 to 5% of listings are affordable to a typical household in that area, I mean, that really shows us that it's not about better budgeting or saving strategies. It's really about access and who has access to the amount of income you need and wealth to be able to even think about entering that market.
- [22:33]
Farnoosh Torabi
Yeah, we'll talk later about some of that generational wealth that's finding its way into the current market. We know that is happening. We know parents are helping out, the boomers are helping out their, their kids. And, and that's fine, but let's, let's talk about it. Right, but before we get to that, let's talk also about, you know, you did a lot of reporting on this. Anecdotally, for the first time, home buyers that have landed, that have found their way into the market, what have you found to be their secrets or how are they doing things differently besides the stuff that we might already assume, like generational wealth or you know, besides like getting lucky. But maybe you do need luck. Maybe it's just luck. I don't know. You tell me.
- [23:15]
Alex Gailey
Some of it is luck, I think. But the theme that I hear over and over again is flexibility and realistic expectations. So buyers who are successful today aren't rushing in and trying to check every box. They're thinking about location, house type and timing in a practical and flexible way. And I think they're willing to be patient. So a good example is a couple I spoke with in Pittsburgh, which that market is working in their favor. It's more affordable when compared to a lot of other markets. But they were first time home buyers. They spent about a year and a half actively searching and certainly there were a lot of feelings of frustration with the market. They kept getting outbid by investors, but they didn't let that, that drive them into a deal that didn't make sense. They had pretty firm boundaries about inspections and they were taking advantage of Pennsylvania's first time home buyer program, which does come with a little more red tape for sellers. But they were willing to just be patient and be open to neighborhoods and home features so that they could just realistically stay in the budget that they could handle. I think if you start to get to a point where you're really desperate to buy a house and you act purely on emotion, that does put you at higher risk of feeling regret after your purch. We see that in the bank rate data. You know, nearly half of homeowners have at least one regret about their home purchase. So it's very common to feel homeowner regret. And I think you lower the risk of that when you're realistic, patient and flexible in the market.
- [24:40]
Farnoosh Torabi
I saw a study recently, I don't know where it sourced, but it said like the secret to happiness is not having a big house. I think that sometimes we're sold this, you know, this dream of having the like big house and, and it looks great on in the videos and we can imagine ourselves, you know, having a great time in this home. But the maintenance, right, who's going to clean the house, who's going to fix and repair the house? And if you're spending a lot of your time doing that stuff, you know, that as opposed to maybe a smaller home that doesn't require as much attention, it just comes down to how do you want to spend your time. And a big home requires a lot of your time and attention. Even if you outsource a lot of that still requires a lot of your time and attention. Now with regards to the creative, like sort of financing or you know, how these homeowners are arranging the households even. I was reading that your survey data found that millennials are buying homes with friends and family at much higher rates than older generations. And then back to that generational wealth. About 15% of homeowners got financial gift from friends or family for their down payment. This is According to Most recent data, 2025 Bank Rate Survey data. So what is that telling you about? You know, just this again, this, this idea of affordability right now?
- [26:07]
Alex Gailey
Yeah, I think younger generations are trying to do just about anything they can to get their foot into home ownership if, if that's a really big goal of theirs, which it is for many of them. And so, yeah, they're willing, much more willing than older generations to buy with friends or with family. They are looking hacking strategies where they buy a home and then they have roommates to help manage the costs. They're even moving back in with mom and dad for a little while so that they can save up faster for that down payment and the closing costs and all the costs that go into homeownership. So I certainly think there's a lot of creativity and unconventional paths to buying a first home that we're seeing now than in previous generations, you know, even younger generations, you know, with, with side hustles and online, their online social presence. They're, you know, building these businesses that are allowing multiple streams of income to get there. And so, you know, I think it's important to note that these come with trade offs. You know, they're not silver bullets, but I think they reflect how buyers are adapting when the more traditional path of homeownership, maybe in the, in the past it's been more with domestic partner or spouse, isn't as realistic as it was before.
- [27:21]
Farnoosh Torabi
Yeah, I mean, this year we're predicting a drop again in interest rates. We had one drop towards the end of last year. Although mortgage rates don't track, the fed funds rate, you know, apples to apples, you know, in general, if rates are coming down, we might see some of that effect on the housing market. Do you have any predictions as to what the activity might be like this year, if there might be more houses coming on the market? I mean, just anecdotally, I was talking to a local agent here in Montclair, New Jersey and I said, hey, how's the spring market looking for you? And she said, you know, I have a lot of listings coming on the market. Some not till June, but more than last year. And I said, oh, what's driving that? She said, you know, it's just for a lot of people, it's just timing. These are folks that I've been talking to for years and now they just feel like it's the right time. Largely empty nesters. I think that one of the things that I often say amongst friends and you know, off the record, and now we're on the record. But I say like the boomers got a boom boom. Once this generation sort of, you know, stops being homeowners, to put it nicely, then maybe we'll see some inventory and then we can. But that's, that's still gonna take time. Cause we're living longer. And like I said, those 3% interest rates, if you're buying at your age 40 and you're holding onto this house for 30 years, that's, you know, that's a long time until someone else has the opportunity to live in your home, to buy and live in your home. So I don't know, again, are you seeing any different? Are you, are you, as you look at your crystal ball for 2026, like, are there any changes that would be helpful to listeners to hear?
- [29:02]
Alex Gailey
I think over the last year we've seen more muted demand in the housing market. And I think going into 2026, some of that or a lot of that is driven by the affordability challenges. But at the same time, we've seen many regions in the US really increase their supply because finally those apartment buildings and houses that were bu in the thick of the pandemic are now finally available on the market. And so I think overall we've seen actually supply improve very broadly across the country, but more specific and specifically in pockets of the country like Florida, Texas, that Mountain west region. And so that is definitely easing some affordability challenges in those markets. We've seen muted demand. But then I think going into 2026, if we see mortgage rates, rates even just drop a little bit, I think we'll see a boost and all of a more sudden interest from buyers that have been waiting on the sidelines to enter the market. Now we have to be careful with how much demand is being created because again, we're dealing with this decade long supply issue. And so the challenge is, you know, getting more people into the housing market, but it's also being able to meet that demand with supply. And I think generally what I've heard economists and experts in the housing industry is that we're headed towards the right trajectory in terms of affordability. Affordability has been improving, but it's a slow process. I don't think we're going to see, you know, incredible relief in the short term. I think it's going to take years to really start to see affordability pressures ease. And, but amid all the doom and gloom, I think we do have some good news in that 2026 will definitely be a better year for buyers. Bargaining power and options Great.
- [30:56]
Farnoosh Torabi
Well, along those lines, you know you mentioned earlier the Pennsylvania first time buyer estate program, a grant. Are there other sorts of programs for first time buyers that they should know about? Because it might again, it might just allow them to have a better chance, a better time affording a home.
- [31:15]
Alex Gailey
I would say that there's a lot of strategies you could implement as a first time home buyer. I alluded to this earlier, but I think a high level if you really understand the full cost of homeownership, so not just the mortgage payment, but also what you're committing yourself to in terms of property taxes, home insurance, maintenance and repairs and then you're staying flexible and just not letting that housing market FOMO get the best of you. I think that is definitely a critical recipe and success of becoming a homeowner nowadays. I think you know it, you probably would be surprised how many people don't really understand the all in cost of owning a home. But on the financing side, there's definitely misconceptions and one of those, one of the biggest that I see and that we see in the data is that you need to have 20% down to home. And we see that in our data. About a third of Americans believe that and that is just not the case. When the median price home is $400,000, it's unrealistic to expect people to come up with an $80,000 down payment. And a lot of people write themselves off and just think, oh, I can be, I don't have 20% down. But you can find loans that, and whether it's, you know, through the government or conventional loans that allow you to put significantly less down and at least get you into home ownership. Now of course that affects your mortgage payment, but again you, you shouldn't write yourself off if you don't have 20% down. So I think a lot of people don't know about the eligibility of these types of loans and first time home buy home buyer program their state. So I think doing your research and just talking to an expert in that area who can really help you weigh your options is really important to, I think finding what works best for you.
- [33:06]
Farnoosh Torabi
Yeah, I mean we always recommend that if you're going to buy a home that you hope to live there for at least, you know, five years is a good, is a good time just to allow for in, in the event that you only put down 10% and the market goes south heavily one year that you have time in the home for it to recover. You can sell and not be underwater as they say. But yeah, that's interesting. And I will say too here, even in Essex county, we hear from agents all the time that they close deals for their clients and they're not putting down 20%. And these homes are much more than the national average. So I think that's hopefully relief for all, all buyers at all levels. But again, just keep in mind that putting down more to your point, it reduces your mortgage requirement every month, but it also gives you a little bit more or a lot more equity. And then if you have to sell, turnaround and sell quickly, you know, you, you have just, there's a better chance that you can sell, you know, above value, so to speak.
- [34:13]
Alex Gailey
Yeah, I found the median down payment for first time buyers is around 9 to 10%.
- [34:17]
Farnoosh Torabi
Wow.
- [34:18]
Alex Gailey
Again, it certainly helps to put 20% down and it does allow you to avoid also paying private mortgage insurance.
- [34:25]
Farnoosh Torabi
Right.
- [34:25]
Alex Gailey
But there are plenty of loans out there where you can put down as little as 3 to 3.5%. Like that is an option out there for people. And whether you take it or not, that's ultimately that you have to make that decision for yourself. But, you know, I think again, don't write yourself off if you don't have 20% down.
- [34:43]
Farnoosh Torabi
Yeah. So you didn't think I was going to ask you this, but you, you made the mistake of telling me some personal stuff before we got onto the recording. And I know you are kind of in this, like, inflection point of trying to decide whether to stay in the Northeast or to go to. I guess it's considered the South. South Carolina, North Carolina is. Am I correct in saying that it's kind of like. Yeah, okay, technically. Well, you don't have to get too specific, but what are some of the things that you're considering around affordability and what have you, what have you seen? Like, how much, how much further can your money stretch down south versus here in the Northeast?
- [35:23]
Alex Gailey
Yeah, so I've definitely looked at home prices in northern Jersey and compared them to home prices in Charlotte, for example. And yeah, definitely a huge difference there in just the prices alone. And then I think the biggest thing I see in what homes are available. Well, there's more options available in Charlotte than there are in a lot of the northern Jersey towns. And also the quality of home seems to be a lot better for, you know, more bang for your buck in a lot of ways. So, yeah, I think certainly I'm at a point where my husband and I are just debating whether we want to commit ourselves to staying in northern Jersey and trying to buy a house up here, knowing that we probably will be paying a lot more and making certain concessions about the home type or the quality of home or even location, and having to be, you know, a lot more flexible to some of the tips I gave earlier. Or if we want to move down south, where housing affordability is a lot more easier to find, more attainable, and see if that makes sense for our lifestyle and our careers. So I think the attraction with the south is certainly the ability to buy what I would consider is a better home at a better price compared to the Northeast. I mean, I. I don't want to knock the Northeast. You know, lots of advantages to living up here as well. So.
- [36:51]
Farnoosh Torabi
Yeah, I'm finding, too, that as costs like childcare goes up, people are finding value, more value in being closer to family. Right. And having a network around them that can support their household unit. And I'm wondering if you found that, too, that part of the consideration, what keeps people in certain areas or wanting to live in certain regions is the pull of family and then the benefits of that, which is offsetting some other costs like childcare.
- [37:24]
Alex Gailey
I find that certainly to be weighing in our decision. You know, my mom is and my sister are both in North Carolina. My parents want to move to South Carolina. And so being. Although we wouldn't be in the same city, I mean, being within an hour, two hours, three hours of our close family when we want to start a family would be tremendous help. And especially thinking about the high cost of childcare, particularly in the Northeast, I know that's certainly weighing on my decision. I know that. But that's certainly something that I think a lot of younger generations who are entering the phase of wanting to buy but also wanting to start a family are certainly weighing, where can I live? Can I live closer to my family so that I get help from them on the childcare side? And how does that look against home prices and my finances in that particular area? So definitely a huge consideration for. For us in particular.
- [38:30]
Farnoosh Torabi
Yeah, makes sense. I mean, when you're talking about housing, you're not just talking about the cost of your mortgage and affording that. It's also, you're now talking about all the other costs, that if there was relief there, you might be able to actually have a shot, a better shot at buying a home. And obviously childcare is one, but also what you earn at your job. Right. And what are the benefits, Whether there's coverage for health insurance, you know, things like, obviously your salary and your. Your benefit, your flexible benef, your ability to Work from home, not from work from home. All of that. I think you cannot make a decision about housing in a silo. Right. All of that also factors in. You talked earlier about structural changes. I know that the government's floated around this idea of a 50 year mortgage. I think we've sort of put that to bed. Hopefully if nothing structurally changes, like if we don't actually increase supply at the pace that we need to, what do you think homeownership's gonna look like, let's say in five years, in 10 years, especially for the first time buyer cohort?
- [39:36]
Alex Gailey
I, I make the case in my article with supply data that, you know, buying your first home is increasingly becoming a luxury in, in many major markets. So if nothing structurally changes, I think it'll keep going down that path, which will only financially like limit and harm younger generations. I think we'll continue to potentially see that first time home buyer, median age creep up. It's at 40 years old right now, so that could even go up further. But I think more delayed buying affects their ability, you know, younger generations ability to build long term wealth. Although we have talked about lower barriers of building wealth, but I think it's also a huge emotional loss in a way for millennials and Gen Z. You know, it has been ingrained in and a lot of us since we were young that owning is part of the American dream. And you know, now younger generations feel like they couldn't be further away from accomplishing that dream. And I, I think that there's a frustration with the housing market because it feels like we're not even allowed to make that decision for us in a lot of ways, like it's automatically being made for us that we are, you know, just simply priced out. And I think that it has influenced this wave of financial nihilism among younger generations. And you know, they may not be able to afford a house, but they do have, you know, some money and they're choosing riskier paths to build wealth, like investing in crypto or sports betting. And so I think again, if nothing changes on the supply side or just structurally in those tougher, particularly in those tougher markets, homeownership will continue to skew towards the wealthiest, especially those with generational wealth, and I think continue to see more and more millennials, Gen Z, renting for longer.
- [41:21]
Farnoosh Torabi
Yeah, I mean we are expecting that wealth transfer and it's already starting to happen. But to your point, that's not everybody that's going to benefit from that. And so as parting thoughts or parting advice, what would you say to someone listening right now, who wants to buy this year, feels completely discouraged, doesn't have the luck of, you know, the generational wealth and aside from the fact that it might be the American dream they really do want to own, because it may mean other benefits like stability, you know, knowing what your monthly housing costs will be to an extent every single month. And I think people just, you know, psychologically, for those of us who are drawn to ownership, part of it is, is that sense of rootedness in a community. And you can absolutely get that as a renter as well. It is something that is also very ingrained in. It is also something that's very much a part of ownership.
- [42:20]
Alex Gailey
Yeah, I love that you bring up how much of a lifestyle decision buying versus renting is. You know, we talk a lot about the math and the financial side of that decision. But I would argue that before you even think about the math, you should think about your lifestyle and what do you want makes it easier for you to do what you want in your lifestyle. So, you know, buying provides a sense of stability and, and putting down roots. And yeah, it is a shield against inflation and you build long term equity and you have some tax benefits and you know, you can more, you feel more rooted in building that community around you because you know, you probably need to stay there for at least five years to recoup those upfront costs. But then, you know, renting on the flip side offers a lot more flexibility if you are, you know, a no nomadic person and you want to move around or you, you just, you know, you're not settled yet or you just don't want to worry about maintenance and repairs and you like the amenities that your building provides and those are all reasons why someone might want to rent even if they can afford to own. So I think it's a huge lifestyle decision. But what I would say to someone who is wanting to own but feeling discouraged, I think first I want to validate your feelings and, and tell you that like you're not imagining it, it has increasingly harder to become a homeowner over the last five years. And I think secondly, not now doesn't mean not ever. And so I think start with building a realistic plan for accomplishing your goal and focus on the controllables. We can't control home prices and mortgage rates and the market around us, but we can control like how we're being really effective with building a plan for saving, for that down payment and closing costs and making decisions on how to get there. We can control our credit scores and making sure that that's in a really good place and getting pre approved for mortgage before you enter the market you can control getting really familiar with your local area's real estate market and understanding the neighborhoods and where are the homes that you're interested in and are they in your price range. And I think in tandem working with a really knowledgeable expert realtor who will look out for your best interests in the market and having those conversations early, you know, really preparing yourself to what is likely going to be the biggest financial commitment of your life. And again, I said this earlier, I want to say it again. Do not let housing market FOMO get the best of you.
- [44:51]
Farnoosh Torabi
Yeah, well said. Really well said. I want to point everyone to your article. It's really a great story. Not just rich with data, but you interview, you know, households and really bring a lot of life and you know, personality and narrative to the this really this, this story that I don't think is going away. So we'll probably see you again. Alex Alexgaley with Bankrate.com thank you so much.
- [45:19]
Alex Gailey
Thank you so much for having me here. And, and maybe next time I'll be in a place where I have entered the housing market and can speak to that. We'll see.
- [45:27]
Farnoosh Torabi
Yeah. Whether it'll be down south or here in Jersey. We're, we're cheering you on.
- [45:31]
Alex Gailey
Thank you.
- [45:35]
Farnoosh Torabi
Thanks so much to Alex Gailey for joining us. If you'd like to read her article, I've got that linked in our show notes. It's called price out of 75% of the market. America's dream of homeownership has become a luxury. Thanks for tuning in everybody. I'll see you back here on Wednesday. And I hope your day is so money.
- [46:05]
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