If You’re Young You Shouldn’t Buy A House

Today, we sit the “young people” who read The Juice down and give them a cold, hard dose of reality. If you know “a young person” who might need to hear what we’re about to say, by all means, forward them this email. 

But first … 

Earlier this month in our Housing is Haunted series, we wrote:

On the bright side of things, while we are in a housing crisis for new and prospective homeowners, the majority of people are in relatively sound, if not objectively amazing housing situations. We covered this extensively last week in The Juice:

• Based on 2022 government data, 84% of outstanding mortgages carry a 5% or lower interest rate. 
• 63% come in at or lower than 4%. 
• 42% of homeowners have no mortgage. That’s up from 34% about ten years ago. 
• 78% of the homeowners with a free-and-clear mortgage (as in, no payment) are 55 years of age or older.

Presumably, many of these folks make comparatively care-free trips to Home Depot and Lowe’s and call up Lennox regularly for service or to replace blown out HVAC systems. In other words, this part of the housing market rolls on, even if lots of people have been priced out of it. In fact, if these all-set homeowners feel trapped in their homes due to high interest rates and prices, they might just have the bug to make upgrades and improvements. 

Since then, search interest in Home Depot (HD) and Lowe’s (LOW) among investors has increased in our proprietary Trackstar database and the stocks are down 2.5% and 3.4%, respectively. 

If you’re a long-term investor, it’s time to gobble up shares of both stocks, especially HD, which trades at a P/E ratio of 17.9. That’s lower than it has been in a while. For example, HD ended 2021 with a P/E ratio of 27.6. 

Yes, management dampened expectations for the year, but that’s to be expected in the current economic environment, particularly amid the housing crisis. But, here again, don’t lose sight of the fact that this is a housing crisis negatively impacting a relatively small number of people. 

As we got at it in the excerpt above, homeowners with low interest rates and a shit ton of home equity can complain all they want about being trapped in their homes. If they consider this a problem, they best consider it a good one to have. 

To soothe themselves, more than few will embark on home improvement projects. This will benefit Home Depot and Lowe’s. Even if we end up wrong, there’s nothing wrong with waiting things out with two perennial market stalwarts if you have a time horizon of several years-plus. 

Now, for the youngsters, who, presumably, aren’t in all-set housing situations. In fact, many might be feeling the pressure to become homeowners. To stretch themselves and take the plunge now, before it’s too late. 

Here’s our message to them: Don’t do it. Because the American dream is dead and outdated. It worked for your parents. It’s not going to work for you. 

Consider where we’re at. 

With the interest rate on a 30-year mortgage at 8.0%, you’re looking at a monthly payment of $4,175, including taxes and insurance, after a 10% down payment on a $500,000 home. 

Do you really want to part with $50,000 then be on the hook for $4,175 a month – plus maintenance and unplanned expenses – for the next 30 years or so? 

What kind of life is that? 

We recently saw a financial planner make some sense on CNBC. In summary, here’s what he said: 

• A home isn’t an investment; it’s a roof over your head. 
• It’s extremely hard to calculate your real return on investment. 
• It’s tough to track every little “repair or addition” you made to your house over 20 or 30 years. 
• Home ownership has become “exorbitantly expensive,” increasingly hard to achieve and that doesn’t look as if it will change any time soon. 

The Juice could not agree more. 

Home ownership only makes sense if it makes you better off financially today and for the rest of your life than you are today. The days of struggling for a few years to build equity — of being house rich, cash poor — are long gone. 

Today, the American dream is more about having cash in your pocket and the bank alongside a relatively low housing expense than it is signing your life away simply to be able to brag that you’re a homeowner. Or at least it should be. 

The Bottom Line: Even if and when interest rates come down, there will be little relief. In fact, things might get much worse. Because lower rates will bring loads of people off of the sidelines, creating bidding wars amid tight supply and an insatiable appetite to leave renting and apartment living behind. Here again, aspirations that are relics of a — let’s face it — dead American dream as we knew it. 

If you’re young, don’t be one of these people who stretches financially just to own a home. 

View the death of the American dream as good news. 

Aim for a modest housing expense and a robust life. Not out-sized housing overhead and a life where you struggle to make ends meet, spend freely and save and invest regularly along the way.

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