In this episode of Friends Talk Financial Planning, John and Bridget discuss the concerns facing many Americans today regarding home ownership. Has it truly become impossible for regular folks to afford a house in today's economy? They'll analyze housing affordability in the US, discuss historical home ownership rates with regards to the modern context, and explore whether our expectations of what a home should offer have evolved over the years. Prepare to challenge your perceptions about buying a house, understand the facts versus feelings, and consider the choices involved in homeownership. Don't forget to like, subscribe, and hit the notification bell to stay updated with our latest talks!
If you would like to learn more about how to make smart decisions when it comes to buying a home or want to find out if home ownership is still in reach for you, consider reaching out to a financial planner or visit acplanners.org for more resources. We hope our discussion not only informs but also empowers you to make the best choice for your situation. Remember, smart financial planning could bring homeownership into reach!
#HomeOwnership #HousingMarket #FinancialPlanning #RealEstate #Affordability #HousingCrisis #AmericanDream #FTFP
TRANSCRIPT:
John: Housing prices have been skyrocketing in the US, and a lot of things that we hear talk about how it's really difficult, and maybe even impossible, to buy houses these days for regular people. Is that really true? That's going to be our topic of conversation on today's episode of Friends Falk Financial Planning. Hi, I'm John Scherer, and I run a fee-only financial planning practice in Middleton, Wisconsin.
Bridget: And I'm Bridget Sullivan Mermel. I've got a fee-only financial planning practice in Chicago, Illinois. Before we go on to talk about housing affordability, please hit subscribe. We're trying to get to a thousand subscribers, and you can help.
John: Listen, I'm interested in getting into this topic. You know, it reminds me, I moved to Madison almost 30 years ago from the Milwaukee area, and I thought, “Oh, good. Going from a bigger city to a smaller city, I'm going to save a lot of money on housing.” And that turned out not to be the case.
Bridget: Oh yeah, Madison is not cheap from Wisconsin standards.
John: Yeah. And living in Chicago. I know I have heard about the price of housing, and I think you do, too. I had seen something recently that said, since the pandemic started in 2020, median house prices in the United States are up 27%, in just four years. It’s significant. There're some facts that go with this. But I was reading this article, Bridget, and we'll pull up a little graphic here that comes from the US Census Bureau, and it talks about the home ownership rate. And sort of the thought process that I hear from people is, “Back in the old days, back in the leave it to Beaver days, you could have one income. I didn't need to have this. And we could have a house.”
And take a look at these numbers from the US Census Bureau. Since the 1960s, the home ownership rate has been somewhere in the 60% to 65% range. And before that, less than that. So as I looked at this, I thought, “Wait a minute.” You see the value of houses going up, and yet the home ownership rate hasn't changed in 50 years, in our lifetimes. So what's going on? There're two different stories out there, and I'm not exactly sure what to make about it, but I'm interested in hearing your comments, your thoughts, and kind of dig through this.
Bridget: Yeah. Well, I think that we know that the price of homes seems to be going up right now, so that is going to make home ownership higher. But the number of people that have homes is steady, so people aren't selling their homes. If the price was going up so high, people would sell their homes and do something else with the money, wouldn't they?
John: Well, but then they need a place to stay. I thought that too. This is really interesting. Just think, oh geez, I'll do this, but yeah, but I still need a place to stay. One thing I thought looking at this is going okay, maybe your folks and my folks bought their home in the fifties, sixties, seventies. And they owned their homes for a long time. I've owned my own for a long time. Maybe that's just a matter of they haven't sold. But then I look at, you know, your folks aren't in their house anymore. At some point you go, “Right, those people that bought their houses in the fifties are probably not living in that same house right now.” So you think about that.
Bridget: I have to say that I think people's standards have doubled.
John: Oh yeah. Right.
Bridget: So when I was a kid, back in the old days, back in the stone age, we had eight people living in a four bedroom house with one and a half baths.
John: How did you do it? You didn't have your own bedroom? Oh my gosh.
Bridget: I know, right? I didn't have my own bedroom.
John: Did you walk uphill both ways to school? 😊
Bridget: We had a bus, but no, we shared space. And we had one phone. We didn't have phones. We weren't carrying around our phones. We had one phone with a long cord. And I don't think this house was 2000 square feet.
John: For eight people. Isn't that something?
Bridget: Yeah. And so, none of my siblings live in that crowded of a situation now. And so, I'm sure we all pay more for our homes. Oh, with one exception, let's say. But we're getting more, we have more space than we had when we were kids.
John: Yeah. I think that there's some factualness to the idea that “it's unaffordable these days.” The value of the median sale price, those are the numbers. The prices have gone up quite a bit just in the last few years. But then also that context of what are you getting? I know I had seen data going back into the early 1980s that the average size house today is 50% larger. The average new house being built today is 50% larger than the average new house being built back in the day.
Bridget: Yet, the birth rates are going down.
John: Yeah. Do the math on that one.
Bridget: So, everybody's got more space, which is fine.
John: It's a choice.
Bridget: That's the thing. I got a lot bigger house. You know, it's great, but it's not like saying, “I can't afford a house.”
John: Maybe it’s like saying, “I can't afford the thing that I want.” I want to have all that space, and it gets more difficult.
Bridget: I want to live in a certain neighborhood.
John: But that chart that we pulled up earlier says that the homeownership rate hasn't changed. I think that's really interesting. I'm not sure what exactly to make of that one, because it certainly feels like fewer people can afford to own their houses right now, but that's not what the data shows. But that feeling comes in. I completely agree with you. It's a matter of saying, “What do I want?” I had a friend of mine that was just looking for new housing after a life change. And so, I was just doing a little bit of digging because I enjoyed doing this stuff.
And she was saying, “Yeah, it's really hard to find anything affordable.” And my folks are both teachers. Where I live here in Middleton, the houses that my parents I might have grown up in had I grown up in this area, that one teacher or two teacher household could afford are hard to find. Yeah, golly, it’s not very affordable to live within walking distance of school like I did growing up. But, you know, you can take that same house and you go outside of town for half an hour, to where you live.
A half hour is about a mile drive sort of thing. But here you go out a little way and you go, “Geez, you can find something very affordable.” And then that dichotomy comes in. Well, hang on a second. I want to live where I can ride my bike to school or whatever. Yeah, there're tradeoffs. It's not that you can't find a house that's affordable for $200,000. It's yeah, but I don't want to live 40 miles away from where I go to work, and it's these tradeoffs on things.
Bridget: In Chicago, there're all kinds of affordable places to live. But it's, again, similar to your thing. It's not necessarily in the flashiest neighborhood.
John: Yeah. It's interesting. I remember when I first moved to Madison, I thought, “Oh, we can get an apartment there or an apartment there.” And I quickly figured out that some of those places that were really cheap were cheap for a reason, like unsafe neighborhoods and things.
Bridget: Right. In Chicago, of course, there’re unsafe neighborhoods. But there're plenty of safe neighborhoods that are just working class. Lots of people live there, and it's totally fine. One of the things I like about Chicago is that it's in the middle of the country, but it's also in the middle of the housing prices. So it's just right in the middle. It's more expensive than other places, certainly, but then it's less expensive than a lot of the major cities. And a lot of people actually like it for that point. But I will not go into that. I'll stop extolling the virtues of Chicago.
John: Well, you talked about the different locations. When my friend was looking, I decided to dig in. I went on Zillow or one of those sorts of things. And I thought, “You know, geez, I don't think it is affordable around here.” And I was really surprised at the number of houses in my price range. And I can't remember if I used $200,000 or $250,000 as my budget for buying a house. And there were some of these places that were like a tear down house. You go, “Okay, that's not acceptable. That's not what we're talking about.”
But there were places with two bedrooms, one bathroom, a home in an upscale, last ten years, newish neighborhood in that price range. And I was really surprised. Hey, that's pretty nice. But to your point before, about what do we all need to have in our lives? You go, “Well, geez, I want to have, in her case, maybe room for the grandkids to come over, an extra place for them to play in, a big enough yard for having two dogs instead of one dog.” And with these things, you go, “Well, wait a minute. Yeah, it's a 1,000 square foot home. But when you're a single person, what do you need?”
Two bedrooms and a bathroom and the kitchen. Some of that stuff that back in the old days was perfectly fine. And now we go, “Hey, we can't manage with that level.” And again, I'm with you. It's the choice. I've got plenty of space, but it's because I chose to do those things and I can't complain. I've got a big yard for the dog to run around, and it costs so much. Yeah, it does. But that's a decision to make. It's not that I can't do other options. And that I think is really important as we think about making all kinds of financial decisions, especially when we get locked into saying, “Well, here's how it is.”
Bridget: I think that is especially important with housing because you make that decision and then it drives a lot of other outcomes for as long as you're in that house or in that situation. So if you over buy on a house, it's hard to save money; you get into scarcity mode; it's just a drag.
John: Yeah. It’s different than some other things you purchase.
Bridget: Exactly. And so, it is different. And you make this decision and it's kind of hard to get out of it. And so, it is a bigger decision, and it's a lot easier to trade up in five to ten years than it is to deal with all the negatives of being overextended.
John: Yeah. You know, one of the things I think about on our discussions here is how do we use this? And one of the things we've seen in several recent episodes. Number one, what are the facts? It feels like it's impossible to buy a house, and there's evidence of that. But what are the facts? What do houses actually sell for? What have they gone for? And so, number one is just knowing the facts. And the other one is this decision-making point. Alright, what do I really need? What are the differences between needs and wants? It sounds so simplistic, but at the same time, it's really important. It's simple, but it's not simplistic when making that decision about what's really important to a person.
Bridget: Yeah. And if you can flip the script from saying “I can't afford anything” to “What can I afford?” Oh, wow.
John: Isn't that interesting?
Bridget: And I think that you might end up being happier if you can flip the script versus focusing on all the stuff that you can't get in your price range.
John: Yeah. I love that. I think that's a great place to wrap things up here. Again, I'm John Scherer. I run a fee-only financial planning practice in Middleton, Wisconsin.
Bridget: And I'm Bridget Sullivan Mermel. I've got a fee-only financial plan practice in Chicago, Illinois. John and I are both proud members of the Alliance of Comprehensive Planners. We're both taking clients, but if you're interested in a planner who thinks like we do in your area, you can check out acplanners.org.
John: And don't forget to hit that subscribe button.
At Sullivan Mermel, Inc., we are fee-only financial planners located in Chicago, Illinois serving clients in Chicago and throughout the nation. We meet both in-person in our Chicago office and virtually through video conferencing and secure file transfer.