For many, attaining a higher education degree, securing a job in his or her field of study and buying a new car and house, oftentimes beyond one’s financial means, was the ultimate goal. For years, this activity fueled an economy centered around mortgages and debt. However, this timeline seems to be changing. Outside of the U.S., where housing affordability is low, recent graduates often share apartments with as many as four others in order to save money to purchase a house. This is also the case in many California districts and is becoming more common in other states across the U.S. as housing affordability reaches new lows, according to the Housing Affordability Index from the St. Louis Federal Reserve.1
In countries and cities where home ownership is not common, individuals typically spend more income on traveling, dining out and hobbies. Recently, this is also a pattern we’ve seen in the U.S. as airplanes have been at full capacity despite increased travel prices and dining out sans a reservation has become almost impossible in some cities.
In today’s Chart of the Week, we can see that the seasonally adjusted annual rate of total existing home sales, which tracks the sales of previously owned homes, including single-family homes, townhomes and condominiums, is at levels last seen in 2009 and 2010.
As mortgage rates have increased to levels not seen in the past 23 years, there has been a notable decrease in mortgage applications and, what I believe to be, a shift in the timeline previously described.2 With houses becoming more unattainable and the flexibility of remote work, recent graduates are welcoming the idea of renting an apartment with friends in a city of their choosing. By not purchasing homes, these individuals save thousands of dollars in down payments and any upkeep expenses that might arise in the first years of homeownership, ultimately leading to more disposable income to spend, save or invest.
Key Takeaway
Recent graduates shifting their preferences, favoring long-term rental over immediate homeownership, represents a break from conventional economic standards. This change, fueled by growing housing costs and the ability to work remotely, gives more financial freedom and the ability to make alternative investments. If this pattern continues, it has the ability to affect the economic terrain by decreasing dependence on mortgage-driven economies and promoting spending. Because of this, the effects of this shifting housing culture could be extensive and alter how our economy functions going forward.
Sources:
1St. Louis Fed – Housing Affordability Index; as of 10/13/23
2Reuters – U.S mortgage rates soar to highest in more than 23 years; 10/25/23
The material provided here is for informational use only. The views expressed are those of the author, and do not necessarily reflect the views of Penn Mutual Asset Management.
This material is for informational use only. The views expressed are those of the author, and do not necessarily reflect the views of Penn Mutual Asset Management. This material is not intended to be relied upon as a forecast, research or investment advice, and it is not a recommendation, offer or solicitation to buy or sell any securities or to adopt any investment strategy.
Opinions and statements of financial market trends that are based on current market conditions constitute judgment of the author and are subject to change without notice. The information and opinions contained in this material are derived from sources deemed to be reliable but should not be assumed to be accurate or complete. Statements that reflect projections or expectations of future financial or economic performance of the markets may be considered forward-looking statements. Actual results may differ significantly. Any forecasts contained in this material are based on various estimates and assumptions, and there can be no assurance that such estimates or assumptions will prove accurate.
Investing involves risk, including possible loss of principal. Past performance is no guarantee of future results. All information referenced in preparation of this material has been obtained from sources believed to be reliable, but accuracy and completeness are not guaranteed. There is no representation or warranty as to the accuracy of the information and Penn Mutual Asset Management shall have no liability for decisions based upon such information.
High-Yield bonds are subject to greater fluctuations in value and risk of loss of income and principal. Investing in higher yielding, lower rated corporate bonds have a greater risk of price fluctuations and loss of principal and income than U.S. Treasury bonds and bills. Government securities offer a higher degree of safety and are guaranteed as to the timely payment of principal and interest if held to maturity.
All trademarks are the property of their respective owners. This material may not be reproduced in whole or in part in any form, or referred to in any other publication, without express written permission.
