The housing crisis is apparently upon us. Oh joy! As The Grumpy Retiree, I thought I had reached the pinnacle of pessimism, but it seems that Gen Z and Millennials have taken it to a whole new level. These young home buyers are now just as grumpy as us old boomers. Can you imagine what they will be like when they are 65? Scary! They love to blame high mortgage rates for all their woes, but are they the cause or just a convenient scapegoat?

Introducing: Covid

First, let’s set the scenario. It’s 2020 when Covid strikes worldwide and the US Government eventually sends everyone money. That money really wasn’t that much, just a drop in the bucket. But, add that to reduced spending for commuting, eating out, travel and a host of other things, people became flush with cash. They were bored to hell locked in their house or apartment. They went bonkers! Buy a bigger house with a bigger yard out in the country and shelter in place. You want what for the house? $350,000? I will give you $400,000 and no home inspection. House prices seemed to increase daily by 2021.

“During Covid nobody wanted to be stuck at home,
Now everyone wants to work from home.
Isn’t it ironic, don’t you think?”

Alanis Morissette The Grumpy Retiree

The minute everyone got out it was party like a drunken sailor! Every fart sniffing human eventually went nuts when things started to open up in 2021 and 2022. Missed a vacation? Better make it up by taking 3. Need a car and can’t wait? I’ll take a used one please. What? It costs more than a new car. OK, I’ll take 2. Had everyone lost their friggin minds? The Fear Of Missing Out (FOMO) went from a Fear to a Sickness, and no cure was in sight. Then a Vaccine for FOMO magically arrived called The FED.

Here Comes The Fed & High Mortgage Rates

The Federal reserve, a quaint little establishment that controls the movement and availability of money and credit, decided to pull the punch bowl. Let’s be realistic morons! Keep bidding things up, mix in higher wages, and prices GO UP! Inflation sets in and interest rates eventually rise to cool shit down. This is ECON101!

Before you have a shit fit about wages, let me set something straight. There are a lot of people living paycheck to paycheck. In addition there are a large variety of reasons for that problem spanning low paying jobs to overspending. I am not digging into that now, maybe another grumpy time. But a simple fact is this, raise a fast food worker’s wage from $10 – $16 and a burger goes from $5 – $8. When a person previously earning $16 goes for a tasty Big-Mac, they think WTF, I need a raise. Wages start going up across the board, prices keep rising and eventually we are all back in the same place we started. We all have more money and we all spend more for everything. Congratulations. We just invented inflation.

Overly simplistic? A bit, but I’m The Grumpy Retiree, not Milton Friedman.

What Goes Up Must Come Down is A Lie

Candy Is Delicious Food
Enjoy Some Every Day!

The Grumpy Retiree

What goes up must come down works for a lot of stuff, but not everything. Anyone remember Skylab? Not to be confused with Sky Bar which is so much more interesting and tasty. Yes, there is a thing called Deflation when prices go down. Not just select items go down, basically everything becomes less expensive. That sounds Great you say! And it is … not. The only widespread time it happened in the last 100 years was The Great Depression. Be careful what you wish for fool.

Bottom line, whatever the price is today of whatever you want to buy, in general it most like will be more expensive later in life. If prices are all dropping, there typically is a good, or more likely very bad, reason. Some little things like unemployment. Oh look, that house we want dropped by $50,000! We can afford it now if I can only find a job.

So you are saying in 2020 when interest rates were low, houses were more affordable? Well of course a lower interest rate makes a for a lower monthly payment, so yes a house payment was more affordable. But was the house more affordable?

Home Prices, Supply & Demand, Interest Rates & You

What’s the big problem? There is no question house prices over the last several decades have risen faster than general inflation and salaries. Why? Well I don’t know to be honest but that won’t stop me from telling you or making something up. This is the internet and if you read it here it must be true. Truthfully, it does suck for you if you are a first time home buyer. (I never said we were friends.)

In general, home prices are skyrocketing like never before! The jaw-dropping ratio of home prices to household income is hitting unprecedented heights. We’ve witnessed this in the past, during the mid-1940s to the mid-1950s and again around 2005, right before the disastrous housing crisis. Brace yourselves for the shocking truth: the sky-high home affordability levels in 2023 are soaring above any historical norms we’ve ever seen!

Several problems exist and some we can blame on ourselves. Here is the short list of candidates:

• Investors – flipping, Airbnbs, turning into rentals (Reduced supply)
• Land Cost/Availability
• Building costs/materials
• Bigger, Fancier, more more more
• HGTV – I’m sick of HGTV!

Supply Side First

Investors were buying many houses, especially in hot markets. They turn them into rental units, Airbnb(s) or look to remodel & flip them at a Higher Price to you. Individually these may not be the major driver on the supply side, but everything adds up. While higher rates may have cooled investors appetites, those homes are still off the market. And they are being rented to you, at ever higher rates! Additionally, many people are simply locked into a nice mortgage rate and can’t entertain the thought of a higher rate. Lower the supply, and even with flat demand, prices may not fall. Which seems to be happening now.

Good buildable & reasonably well situated land is becoming expensive. Despite all efforts we just can’t seem to make any more land! Big builders want 100’s of acres to build 100’s of houses just outside of a “cute little” town. So good land is drying up and limited land supply means fewer homes get built and expensive land means expensive houses. It general we are building too few homes.

I Want My HGTV

On the demand side, wow we have high expectations! I was selling a 10 year old home that fickle buyers thought was “dated”! Are you shitting me! It is 10 years old, I have pants that are older, way older, and I am wearing them now! We expect houses are of the latest design & decor trends. Sure, I will remodel it before I put it up for sale at a cost of $20,000 and now I want $30,000 more for the house! I call this the HGTV effect. You want trendy, I’ll give you trendy, if you pay for it.

“Prepare to be disappointed, lower your damn expectations!”

The Grumpy Retiree

HGTV has one mission and that is to sell you crap from their partners. It is entertainment in the form of real life, not reality TV! Years ago houses were never remodeled at the current rate. Regardless, this continuous cycle of pouring money into homes means home prices keep going up. Furthermore, nobody wants to pour $50,000 into a house and sell it for the same price they purchased it for. I want my own HGTV show. I casually stroll into a newly remodeled house by some unsuspecting HGTV personality, and proceed to bash the place with a sledgehammer! A new Trend … Grumpy Chic.

My Forever Home, I Demand It!

Where are the starter homes or reasonably priced condos? We just don’t build enough of them and that is a two way street with blame on both builders and buyers. People started to need more and more in a house over the years. Granite counter-tops first in the kitchen then in the bathroom. Bigger rooms, cathedral ceilings, multiple full bathrooms. Well, bathrooms at least are handy. Bedrooms and full bathrooms for every family member. And don’t forget, put a sign in the bathroom that says “Bathroom”. As if the crapper in the room doesn’t signify … crap here.

Builders took notice. Nobody wants a basic house so they build what sells and especially what sells for more money. And it keeps snowballing. “I’m looking for my Forever Home.” What a bunch of bullshit. I live in a retirement community and while some of us don’t walk fast, we move often. I am astonished how many 82 year old people buy a house and live in it 2 years and are gone. Moved, not dead usually, but either way they are gone. Life changes faster than a diaper on a 1 year old, or 82 year old. Wherever you are today most likely is not where you will be in 10 or 20 or even 2 years. Forever home?! Don’t let me hear you say that again!

With Parts and Labor That Will be …

Raw materials during Covid skyrocketed due to supply chain disruptions. “Sorry we can’t get windows, due to supply chain disruptions, for 6 months and they will cost 6 times as much”. or “Sorry, the shoes don’t come with laces due to supply chain disruptions. How about a loafer, which is out of stock due to …” I am sick of hearing about supply chain disruptions at this point!

While some material costs have come down, a lot have been very sticky. Lumber may have come down, but aluminum, copper, drywall and asphalt have not. And labor costs, and scarcity of labor, have driven home building up at a faster than average pace.

Let’s Party Like It’s 1980

Ah, those good old days, the late 1970’s and early 1980’s! Inflation was partying hard at a whopping 12.5%, and mortgages were having a wild time at 15%. People complain about 7-8% mortgage rates nowadays, but historically (2023) they’re pretty average. Just like your stinkin rotten average kid. Everyone seems to have selective memory, reminiscing about the magical 3.5% mortgage rates as normal. Well, spoiler alert: they’re not! A 3.5% mortgage is like finding a unicorn, it’s rare! Regardless, let’s be real, that ultra-low rate gave people an excuse to go on a shopping spree for houses and cars without giving a crapola about price. So guess what? That reckless buying frenzy DROVE PRICES UP!

In 1982 a starter home in my area was $55,000 and a new car about $5,000. Follow with me now. Cars now are priced like a home was 40 years ago. That’s right $50,000 for a new 2023 vehicle is not unheard of. Which means what you are now paying for an average house, in 40 years could be the price of an Average Car! Yes in 40 years $350,000 for a slightly used Crown Vic. Holy Crap Batman! What? They don’t make the Crown Vic anymore? Better hold on to mine.

Consumption is very sticky, we want it, we want it now and we want more. It is really hard for someone to to even consider lowering their standard of living or worse, lower their expectations. But in the 80’s that’s what many people had to do. There was no way I could afford the average house in a nice neighborhood with a 15% mortgage rate. In the 80’s I started looking at 2 family homes so a tenant could help pay the mortgage. I quickly realized that being a landlord was not for me. Visions of me screaming and pummeling tenants keep entering my mind. I wasn’t the Grumpy Retiree yet, but I was well on my way.

I’m Getting Sooo Tired!

Eventually I found a fixer upper. Sitting between 2 businesses. The only granite was rocks in the yard. A one car garage that needed to be rebuilt. Holy crap, just one bathroom. A roof needing to be replaced. And, a kitchen that would make most people cry today. $28,900, I’ll take it!

We lived there about 18 years, raising a daughter, working and eventually owning a business. We remortgaged to 11% a few years after purchasing and were thrilled! When we broke into the single digits mortgage rate it was a damn party.

I put a lot of time and effort into that house. In all honesty we probably should have moved “up” well before we did, but that “high” mortgage payment was now damn low! Funny thing, if you buy a house you can afford today, it looks like a damn bargain in a few years. Do you expect to earn the same salary forever? If you can afford your mortgage payment today, it will seem cheaper tomorrow.

Final Thoughts and Mostly Drizzle

What the hell is your point? If you read this far you should realize I never have a point. Nevertheless, waiting to get into the game at the perfect time is a recipe for failure. Obviously a well informed decision makes more sense that an emotional decision, but damn it, shit or get off the pot! Prices fluctuate for everything over time, but the one constant is, with enough time, even with low inflation your house will increase in value. (*There are no guarantees this will happen and the value of your investment may go down or go to zero. Possibly below zero. Way below zero. Not FDIC insured. Have a nice day or don’t, either way I’m fine.)

“Consumerism in the US is the new Pandemic.

Regardless of price we keep buying more. We bought the Ad.“

The Grumpy Retiree

So, are Gen Z and Millennials right? To be honest yes they are. What’s next? Boomers and Gen Z dining together over a tasty dish of Chicken à la King? Probably not, but honestly I think a few things will slowly change.

Being rich or wealthy is relative.

“You can look rich today or be rich tomorrow. Being broke at 65 won’t be fun.”

The Grumpy Retiree

The main problem is the house price, not the mortgage rate, as mortgage rates are not that far from average. I think mortgage rates will slowly decline, just don’t expect 3% anytime soon. House price inflation will slow. You may need to lower expectations regarding what or where you buy, but I still think home ownership is a good financial decision for most. Being rich or wealthy is relative. You can look rich today or be rich tomorrow. I am not advocating missing out now, strike a balance, adjust priorities. Being broke at 65 won’t be fun.

Life goes by fast. Waiting for the perfect time, the forever house, that magic moment, it may just pass you by while you wait. Or you can wait for all us boomers to croak in the next 10-20 years and buy our houses. But I am remodeling it first and want $798,000 for a “cute” 1 bedroom ranch, with a “brown” kitchen.

Grumpy Disclaimer: The above are the opinions of The Grumpy Retiree. They are not meant to be factual, accurate or true. If anything is true it was a coincidence or more like a mistake on my part. Getting financial advice from The Grumpy Retiree is similar to getting it from Ebenezer Scrooge. Don’t write to me unless you found the article amusing. If you didn’t find the article amusing, read it over and over and …