another "poor millennial can't afford a house" article, critiqued
Article:
Response:
Let me set the scene to save you some time. Our subject is 32 years old, a regulatory attorney living in Seattle. She got her undergrad at University of Rochester, law degree at Syracuse, and is absolutely crippled and distraught over her remaining 140k in student loan debt. Home ownership is completely out of reach, she got bad advice from her parents regarding her education, and feels like a “moral failure when [she] can’t reach these milestones”. Ok. Deep breath. Lets break this down.
Our friend didn’t pick cheap schools. She probably spent about 50k/year for 7 years of education, that’s a nice price tag. She’s been making payments for “much of the last decade”, which has got to sting a bit. Who knows how much was financed, but if she’s got her principal down to 140k she’s made a serious dent. She claims to be living frugally (packs a lunch, doesn’t vacation, takes bus), and shares a modest apartment with her husband. If she makes 100k/year, contributing 4000/mo will pay off the balance in about 3 years. If she’s a working attorney with a 350k education and can’t set aside 52k/year, I am forced to call BS on her “frugal” lifestyle. Regardless of my optimism, I feel for her.
Well played so far, WSJ. We’ve cherry-picked someone with a ton of debt, living in one of the most competitive housing markets in the USA, mad at the world. Yes, it will be a few years before our friend owns a home. It’s a convenient case study to make a point: it’s so hard for us millennials to buy houses! Here we go...
Citing “Apartment List” as a source, Carpenter (author) claims that 2/3 of millennial renters need at least 20 years to save 20% on a median priced home. Excuse you? Let’s do some quick maths. 280k (median home price) x .2 / 20 years = $53.84 per week, not accounting for 20 years of interest/stock market gains. Ok, maybe avocado toast IS a relevant concern at this point? If you don’t have more than $200 extra at the end of the month, please don’t invest in real estate. It’s not for you, you’ll get burned. My point is that these ^ numbers are nonsensical.
Let’s address the boogyman of the article: 20% down payment. Are you scared? It’s referenced at least five times, which is weird, considering she represents the WSJ and the average down payment in the US is 6%. I was making a lousy 38k when I bought my first house with a credit score of 620, it cost me about 5k. Yes, I’m in St. Paul, not Seattle. I still only hear excuses.
She then tells a tale of her parents, living in the good old days of 1980, buying a starter home in Decatur, GA with 22k down (adjusted for inflation). According to RedFin: the average home price in Decatur is currently 223k. Her parents' house might (unlikely but perhaps) be attainable TODAY for a measly 8k with an FHA loan! Regardless of the actual numbers, I think millennial home ownership is probably alive and well in ol' Decatur, as starter-home barrier to entry is under 10k.
The Wall Street Journal writer then suggests that we "consider" a Roth IRA. How about if you do ANYTHING short of lighting your money on FIRE you will max out that Roth IRA, you will eat ramen every Thursday before payday to hit that max, no excuses, you spend more on ubers in a year than the 6k the government lets you invest tax free, are you hearing me?
My main gripe with this article is the order in which it’s structured. IF it began with showing readers the best grad school choices to see financial returns, cited the attorney as a cautionary tale of bad financial planning, and then used relevant data on down payment/mortgage qualification, rather than “I told my mom I might need 20% for a house and she just couldn’t literally even”, I would consider it an excellent read.
The article isn’t 100% bogus. She’s got tons of great data points on the discrepancies between current cost of living ratios and those of our parents, but who doesn’t already know this? Yes, the thesis is correct: we need to look at money through a different lens than our parents did. The trouble with these statistics is that people turn them into excuses. The author reminds us that the median home price in 1979 was 68k less than today. Ok, so an extra $300 on a mortgage payment… Airbnb didn’t exist in 1979, either.
She makes an argument for viewing education as a financial investment that must result in direct gains to the student, something our attorney friend may have forgotten. Some good advice is given, comparing expensive graduate programs to their cheaper online substitutes. I’m getting off track, please don’t take educational advice from the guy who dropped out of three (three?!) community colleges, I’m here to talk about real estate!
Alright, no more negativity. I am biased and also blessed. I enjoyed many debt-free years of work in my mid 20s (it’s hard to rack up student loan debt when you can’t even get into a real college) and was able to save. I worked as a server, lived in cheap apartments, and always had plenty of extra dough. I don’t have kids, or a disability, and my family is supportive. I don’t know the backstory of the author or her subject; I’m simply using their arguments to illustrate a point: it’s all about perspective.
I hang out with a lot of realtors/investors/entrepreneurs. We hear things differently, we have optimism. When we hear “the median home now sells for four times the median income”, we envision finding a free place to live for 4 years, saving every dime, and buying a home outright. Realistic? Maybe not for most people, but that’s not entirely the point. It’s a mindset adjustment that leads to building wealth.
I heard something great on the Biggerpockets podcast the other day: getting pre-approved for a home loan is like getting a checkup at the doctor. You don’t have to buy, but it’s nice to know your financial health. Yes, your credit score will drop 5 points for a few months, you’ll survive. There’s nothing wrong with renting, and it makes sense for many people. Just don’t let articles like this make the decision for you.
Julia Carpenter, if you’re reading this, let a realtor buy you coffee sometime. We’d love to help!
-Adam Tafel