There was a fascinating program last night on television. It talked about the quality of the US economy and the problems that young people have with the actual realities of their lives.
The U.S. economy looks brilliant on paper. GDP grew by more than 5% for
the last quarter. Unemployment is at 3.9%. There are "help wanted"
signs everywhere. The stock market looks great.
Social media posts from young people were shown. To make a long story
short, they complained that they could not afford a car, rent, or purchase a
house.
Let me focus on buying a house. I bought my first house at 1945 Storm
Drive, Falls Church, Virginia in February of 1972. I was 24 years old. I paid
$22,000 US for the house. I got a no-downpayment loan with monthly
payments of $200. My first wife and I had a combined income of roughly $1,000
per month. Our house payment was 20% of our monthly income.
Let us fast forward almost 52 years to now. According to Redfin, my
first house is now valued at $733,217. If a young couple aged 24 wanted to buy
this house, they most likely would get what is called a conventional loan. A
20% down payment would be required. This would work out to be roughly $146,643.
The balance of the 30-year mortgage would be $586,573. That loan would
have an annual interest rate of 7.877% assuming that the couple had good
credit. The monthly payment would be $5,905 per month plus property tax of
$1.32 per $100 of assessed value. We can estimate a final payment of $6,300 per
month. With a 25% mortgage payment to income ratio, we have a final
monthly income of $25,200 or $302,00 per year.
The numbers tell the whole story. For example, let us assume that the
couple is two recent MBA graduates. They might have a combined salary of
$200,000. Unless this 24-year-old couple has some very wealthy and generous
parents, they could not afford the same house that I afforded long ago.
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