Article Image
News Link • Millenial Generation

Shilling: Millennials Should Be Happy They Are Stuck Renting

• https://www.zerohedge.com by A.Gary Shilling

It's generally believed that appreciation in home values is what created middle-class wealth in earlier decades. But that was only because monthly loan payments forced homeowners to save and eventually retire their mortgage debt. Most of the rise in single-family house prices over time is due to larger new structures with more marble bathrooms, fancier kitchens, etc.

The quality-adjusted house price index, developed by Prof. Robert Shiller of Yale University, removes this upward price bias by comparing the prices of the same house when it is sold repeatedly over time.

It shows that average quality-adjusted single-family house prices, corrected for overall inflation, have risen a paltry 1.1% at a compound annual rate since 1972. The reason the results have an upward bias at all is that they don't adjust for interim owners doing upgrades.

But then there's the mortgage rate offset. Since 1972, 30-year fixed-rate mortgage rates in real terms have averaged 4.1%, meaning it has cost the homeowner 3% per year to own a house before taxes, maintenance, utilities and insurance.  That's a real negative return. No wonder only about a third of millennials owned their homes in 2016, compared to half of Generation X at a similar age in 2001 and half of Baby Boomers in 1989. The homeownership rate for people under 35 has declined by 7.2 percentage points from a peak of 43.6% in mid-2004 to 36.4% in mid-2019, steeper than the 5.1-percentage point drop from 69.2 to 64.1 in the total rate.


http://www.thelibertyadvisor.com/declare