Ben Walsh (part of Felix Salmon's financial blogging team at Reuters) mentions some recent economic data about younger people, their incomes and their ability to accumulate wealth:
The economy may be puttering steadily along, but young people are falling behind. Annie Lowrey reports that younger workers are doing worse than one particularly personal gauge of success — their parents. A study by the Urban Institute finds that Americans under 40 have accumulated less wealth than their parents at the same age. As Lowrey points out, “because wealth compounds over long periods of time”, that puts young people at a distinct long-term disadvantage, and also lowers economic expectations. The usual culprits — stagnant wages, the financial crisis, student debt — are to blame....
On the bright side (sort of), younger consumers are less enthusiastic about credit cards than they used to be. Which is fine, because for credit card companies, the feeling is mutual. They’re just not that enthusiastic about extending credit in an idling economy to people with falling wages and shockingly large amounts of student debt...
[snip] The Urban Institute calculates that $42,000 in wealth can be lost if you buy a house when you’re 40 rather than 30. The problem is that this number comes from using data from the “past few decades”. Price appreciation during those few decades, we now know, was an anomaly.Here's an interesting post from Jordan Weissman of The Atlantic that makes much the same point, but points out that the drop in wealth may be most specific to those people that are ages 29-37 (h/t to @StephanieK and SeeArrOh):
...the housing market crashed just as today's thirty-somethings were getting into it. As a result, they found themselves in lots of debt and with very little to show for it. As the real estate researchers at Zillow reported in August, homeowners in their thirties are still the most likely to be underwater on their mortgages.
[T]today's thirty somethings are climbing out of a deep enough hole that they may never become as wealthy as the boomers unless home values rebound dramatically, and even then, many will only be getting back to even.I have a couple of thoughts about all of this:
- I knew people who bought houses to live in during graduate school, during the boom years. I wonder how many folks got hit hard by that -- I didn't hear too many horror stories. (Of course, purchasing a home in or around a college town seems different than purchasing a home elsewhere.) That said, there are undoubtedly many graduate students or postdocs that got hit very hard by real estate (those in California?)
- I wonder if thirtysomething scientists are doing better or worse than their non-science counterparts in their age cohort in terms of wealth and income. It's probably a mixed bag, right? Those who are working at full-time positions are probably doing okay, mostly, while those struggling in postdocs just aren't.
I'm 35 and bought my home in a major US city 5 years ago when I finished my postdoc and scored my first job. Since then, the value has dropped about 40%. Despite paying more than the minimum each month, I'm very much underwater and stuck. Just in the past few months the market has started to turn up, but it will be quite awhile before I come close to breaking even.
ReplyDeleteRegarding your second point, the majority of my local friends have MBAs or JDs. A few months ago during a night out, they joked that I'm the only one of the group with any real skills. Despite this, I'm pretty sure my salary is quite a bit lower than any of the others...
My wife and I purchased a home in 2006 while I was in grad school in Illinois. The bubble popped pretty quickly after that, but in spite of the terrible market conditions we tried to sell our home when I graduated in 2010. First we used a flat fee listing on the MLS without a realtor, but when the local realtors found out that our house was actually 'for sale by owner,' and we were not using a local rep our house was blackballed. After leaving the area for good we relisted the property with a local realtor. With this realtor we received our second offer, ~$25k below our asking price, from the same realtor that made us the first offer; however, this time he was representing himself and his rental property company. We took our property off the market before he could finish the paperwork to make his offer official.
ReplyDeleteAfter this debacle, we posted the property for rent. We've had the property rented ever since. I've been keeping an eye on the market, especially the neighborhood in which our house was located. Sadly prices had hardly rebounded, and there are still several houses on the market. Considering the going price for homes in our neighborhood, we're still underwater. The silver lining is that the rent we're collecting on the property covers the monthly mortgage payment, but that still leaves property maintenance and management fees.
While we had no intention of becoming landlords when we bought the house, I'm happy that we don't have rent for our apartment in addition to our mortgage payment. We plan to try selling the property again in the summer of 2014, but I won't be holding my breath considering everything I've seen of the micro-climate that is the real estate market in the town where I went to grad school. The new industry has enjoyed pointing out that many markets in large cities have historically low inventories, but I don't see that extending smaller markets.
I think the notion that a "starter home" is gone. 10-15 years ago you could purchase a smaller home knowing that in a couple years it would gain value and you could sell it at a profit and acquire more wealth thus moving up the ladder with a better house. This concept doesn't apply anymore. Today it's too risky to assume in 5-7 years your house will gain value. Starter homes seem to be things of the past and so people like my wife and I are stuck between do we buy or rent? Because we haven't acquired much wealth we seem to be just outta reach of a house(housing in the northeast ain't cheap). This, in my opinion, is delaying our purchase as we don't wanna be house poor. Is it me or is housing still ridiculously high? Maybe it's the artificial interest rates being so low that's working against us...
ReplyDeleteMy wife and I are in a position like the one you describe. We don't feel comfortable purchasing a home without having a sizeable down payment, so we are still renting. I am in the southeast, coming from CO, and it definitely feels like they are giving away homes here- prices are very much lowest in this region of the US compared to others.
DeleteWe will be renting as long as we can, but we have a 2-year-old who will be entering school before long, and we'd like to be settled in a house before then.
Good luck!
We are really thankful that I did a post-doc after I graduated in 2010 and did not buy a house until last year when I got a permanent job. Got a great price and interest rate. I'd say its about 50/50 wtih my closest friends that are my age and whether or not I'm making more or less than them. Some have been in good "business-world" jobs since they were in their early 20's right out of college. They probably make the same or more than me. Some still haven't found anything permanent and make a lot less. I think the difference is, my friends who haven't found that stable job make a LOT less. Those who have been in stable positions for 8-10 years might make more, but not a lot more.
ReplyDeleteDemographics could also have something to do with it. Lifespan has increased pretty rapidly until about the last decade. Whereas before the old people used to die with a good frequency, leaving their wealth to the young and moving more homes onto the market, now everybody seems to be living well into their seventies. Now that lifespan extension has pretty much stabilized, we would need one screwed generation until everything gets back to equilibrium.
ReplyDelete"One Screwed Generation" would make a great name for a band.
DeleteYes yes yes, Gen X (note, this is the group to which I was born to)/Gen Y has it tough: bad chemistry job prospects, volatile housing market. I'm sure Gen Z has it tough too (though from what I've seen of helicopter parents maybe it affect the Gen X/Yers more?)
ReplyDeleteMaybe some perspective? A lot of baby boomers ended up getting drafted to fight for Uncle Sam in Vietnam. I'd take working for Corey/KCN/Boger simultaneously over that. A lot of baby boomers parents were drafted to fight the emperor and the third reich. Again, probably not a picnic. A lot of their parents would have gone to fight the kaiser.
So, yes, things are tough for gen x/y, but we really have had it pretty easy overall.
What grad students or postdocs could even afford to buy property in California? Unless they inherited something, no chance they bought anything on their $25K stipend (or even the $53K UCLA is offering). A good condo will run you $300K+, homes are averaging $500K.
ReplyDeleteI think society as a whole is re-thinking whether owning property is even a good idea these days. I have to say, I can't see the benefit for scientists. Even before the job market imploded, there was constant turnover of positions and I ended up moving quite a bit. I've been all over the country for work, and if I owned property that would have complicated my life quite a bit. Then again, marriage/family have never been important to me either, so I don't have to take that into consideration. Some of the scenarios I've personally seen people deal with in the past few years:
-Bought something while in grad school/postdoc, then moved to another state for work and couldn't sell due to terrible market. Now have to manage/landlord the property hoping the price will rebound someday
-Sold home at a huge loss to move somewhere else
-Live apart from family during the week, commute home for the weekend (or worse, only for major holidays due to distance/financial constraints)
-Live apart from family for too long, marriage falls apart
I should also mention that property woes aren't exclusive to my scientist/chemist friends either, I know plenty of people from all walks of life that are underwater on their places.
Job stability is a bigger hurdle for me than being able to afford a house. I've never been in a position where I knew for sure that I would be staying for more than five years.
ReplyDeleteI know non-scientists who have been doing much better than me for years, but for the most part it's rough everywhere and people with permanent jobs with possibilities for promotion are pretty rare.
I've never been in a position where I could stay somewhere more than 5 years even if I wanted to (aside from grad school). There are places that I've liked that I could see myself settling into. There isn't 5 years' worth of stability in any of those places as long as I'm working in biotech/pharma.
DeleteI'm squarely in the middle of that red bar demographic. I bought my first place in a fairly expensive city around 2007. Relocated for job in 2009 and had to sell at a loss, losing all of my equity + an extra 4ish% that we had to bring to the table. My family could be saving a ton of money in my current city by buying rather than renting, but have never been able to catch up on the down payment with other savings goals in mind: kids' college funds, retirement, emergency savings, etc.
ReplyDeleteWe were bitten: hard, and are now extremely gunshy about real estate. Sometimes, I feel like my grandmother who refused to use a bank after the 30's because her family lost a bunch of money saved in a bank during the depression. My wife and I have recently been talking about buying again, but not until we are in a city that has more chemistry jobs available to it than the current one.
It is a little weird though, being at work and telling people that I'm still renting. The older coworkers look at me like I'm stupid. I just don't have enough confidence that I will retain a job in the area for an extended period of town (Same as Anon@1135).
I'm in that +26% demo. Bought house in 2002 when I took faculty position. Left for a new job across the country in 2009. House was on the market for a good 8 months. Stuck with double housing payments for that time (mortgage + rent in new city) so fell behind on other bills. Took a couple years to repair credit score and accumulate new down payment but found house we wanted last summer so entered into lease/purchase agreement and will close in a couple months. Pretty much hit the market in the new city at the bottom (looks like it anyway; prices are up about 20% since about last fall) but this is a smaller metro area not a major city.
ReplyDeleteThere seems to be more to buy when you buy a house. You have to maintain it. You have to get the roof repaired, you have to paint it, you have to own your appliances, you have to fill it with furniture, and nicer to nice furniture. Then there is the hassle of trying to find the free time to do all leg work of filling it up, doing the upkeep. I think I'm just too damaged to take that sort of responsibility. I have to work on my weekends, I'm not really around to even mow the lawn. It's utterly depressing to think about having a family right now. I can't help but think of all of this as a liability for your career.
ReplyDelete