Why Home Ownership Rocks It On Independence Day

Happy Birthday America! We are so proudly grateful to be Americans today, and so fortunate we live in a country that lets us say pretty much what we want, build (generally) what we want, and encourages home ownership. Our fathers, grandfathers and great-grandfathers gave their youth and in some cases, their lives, to fight to keep the American standard of liberty free. In my case, one set of ancestors can be traced back to World War I and II and probably even further back to other wars. But my mother’s set fought instead to leave their native country behind and immerse their children in a brand new land free from the persecution they endured at the hands of Communism. My maternal grandmother kissed her mother goodbye and was sent to the U.S. to live with her older brothers when she was 12 years old. She never saw her mother again. Her pride was the home she bought, birthed and raised her family in, and kept intact during the Great Depression by selling moonshine, I was told. She lived in that home until a few weeks before her death. For awhile, the family ran a grocery general store on the first floor. When my uncles returned from World War II, she had created an apartment for each one of them that she later turned into rentals. In this way, her home became her piggy bank and she refused to leave it until she had no physical choice. She bought her home with cash before mortgages existed, before FHA loans, before PMI.

That piece of dirt was my grandmother and grandfather’s rock of Gibraltar.

A recent essay by Lawrence Yun, Chief Economist of the 1.1 million strong National Association of REALTORS, in Forbes, outlines a concern I have that people in America today are not partaking of home ownership as previous generations have. We hear from pundits that the younger generation prefers sharing over owning, from apartments to cars to clothing. Hogwash: maybe they like Uber, but they cannot afford homes because of college debt they were lured into by banks. And now those same banks, the ones we bailed out during the Great Recession, are demanding higher lending thresholds.

Yun argues that Americans are doing well overall, fabulously well, the “net worth of everyone combined reached $88 trillion as of the first quarter of this year, which has essentially doubled since the turn of the new century in 2000. In 1980 the total net worth was $10 trillion. Some of the increases are due to inflation and from a growing population. Still, the increase over the years has been quite stellar.”

But guess who is not partaking in that celebration? Young people under age 35… some Millennials, some Generation Z, some whatever you call them:

However, a careful look at the data suggests that something isn’t right. During the early 1980s, the median net worth for young households (under 35) was $15,260, while that for older households (age 65-and-over) was $120,500. A wealth difference of some kind should naturally be expected due to steady improvements in people’s careers, and reflects differences in ability and luck as people move along the path of life. Whether the wealth gap of this size (nearly 10-to-1) between older and younger generations is proper can be debated: let the chips fall where they may, or let’s open up more opportunity for the underprivileged.

Renters occupied about 36.3% of households in 2015, the highest figure in a decade, according to the Census Bureau. Home ownership has dropped to 63.6% compared to 69% ten years ago. Folks in their mid-30′s to mid-40′s are more likely to be living in rentals today than they were a decade ago. Susan Wachter, Professor of Real Estate and Finance at the Wharton School say this group was hard hit by foreclosures a decade ago and stagnating wage growth.

Yun notes our pride in rags to riches achievement, very much the seam of American fabric we celebrate today. He notes how Andrew Carnegie threw newspapers on people’s driveways in his youth, how Warren Buffet tossed peanut bags at baseball games. Yun says “The possibility of moving from the mundane to the great is one of the things Americans love about their country”.

What he means is that we are, and always have been, a land of real estate opportunity for 12 year olds escaping Communism or those who start out by buying a few dilapidated homes, fixing them up, and then flipping them. Or those simply making a nest egg by leasing out your guest house on airbnb, as one of our editors plans to do.

Here are the ten biggest land holders in the U.S., and one of them includes sports magnate Stan Kroenke, who recently bought The Waggoner Ranch. But the list also contains Brad Kelley, a reclusive billionaire from Kentucky who stared life on a farm. Investing in land, an unperishable commodity, is what he knows best:

It has also become an increasingly popular investment in uncertain financial times. Some investors see land as a hedge against inflation, and low global interest rates have made land cheaper to buy. Higher world food prices and an anticipation of a recovery in the housing market have bankers pitching land as one of the few places to get real returns on an asset whose underlying value continues to rise. “It’s a nonperishable commodity and it’s as good a place as any to put my money,” Mr. Kelley says. “It’s better than derivatives.”

But it is becoming increasingly more difficult to buy real estate if you don’t get a boost from family or a fat savings account.  Or if you live in one of the three highest prices areas to purchase (or lease) real estate: New York City, San Francisco Bay area or Miami. The Texas real estate market may be up by double digits, but we are still seen as a vastly affordable home owmership mecca.

Young people have had it really bad.  The overly-stringent mortgage underwriting and high credit score requirements impact the young more than people who have had many years of work experience and a longer history of repaying borrowed money.