The Generation X Housing Conundrum

In tomorrow’s Juice we dive deeper into dividend ETFs. No doubt one or more of the names in today’s Trackstar top five might enter into the conversation, as we continue building on our main personal finance and investing themes. 

This is what we try to do in this newsletter. Have and advance conversations with you about the issues that matter to you, your friends and your family. That’s why we often encourage you to use the feedback link at the bottom of the page to send The Juice your thoughts. 

Last week, we discussed one element of the housing crisis in House Rich, Cash Poor:

How many homeowners with $1 million net worths are house rich, cash poor? In that, they’re sitting on wealth they just so happen to live in. But they can’t necessarily spend freely like folks who are cash rich. To tap their wealth, they need to take out a loan using their home as collateral or sell, downsize (maybe considerably) and take their profits to fund a potentially upgraded day-to-day life in a small house.

Imagine. You own something worth $1 million, but maybe you struggle to meet your monthly expenses. That’s the world more than a few people live in. 

In response to that installment, a Juice reader, AW, emailed their thoughts:

You’re spot on and definitely have things sorted out on the house poor, cash rich conundrum. I am the Gen Xer you described and although my home is not worth 1 million dollars yet (approximately $692,000), it has increased in value by roughly 75% since I purchased it in April 2020. 

Imagine that! You bought a house just after COVID hit and saw its value rise by 75%. We’d love to hear more stories like this alongside the specific color that surrounds them. 

Also, we’d appreciate hearing about the aftermath, as AW continued:

Within a year, I lost my six figure job due to the Covid “economic downturn” and my son who is a disabled adult lost his housing also blamed on Covid which meant he returned home, and I became his caregiver. So, I’m actually in a position where I’m considering selling my home and downsizing. So, one thing I’d add to your calculations is the cost of caregiving that many Gen Xers have for their parents or disabled children and that many Millennials have for their children or aging parents.  

Definitely a potential cost we don’t consider enough. 

We guess, looking to the bright(er) side, at least there’s the option to downsize. But several factors come into play. Particularly dealing with less space and the cost of a new mortgage.  

Some people have no issue going from, say, a three-bedroom single family home with a backyard to a condo. Others can’t fathom the idea. Many people might not have a choice. 

Let’s say you sell your home that appreciated by 75% in just a few years. Everybody’s numbers will be different, but one thing’s for sure. Many folks will not be able to pay cash for their new dwelling, even if it’s a condo. This means a new mortgage. 

In April 2020, you could have secured a 30-year mortgage with a 3.5% (or so) interest rate. As of late last week, the rate on the same mortgage is 7.3%. 

If you bought a $300,000 home with 20% down in April 2020, your monthly payment was $1,479, including taxes and insurance. 

Given the increase in property values, let’s conservatively put your 2024 downsized purchase at $450,000. With 20% down, you’re looking at a monthly payment of $3,068. 

Again, every situation will be different. But this one seems somewhat typical to us. And it’s not good. It’s a conundrum faced by quite a few people, specifically folks at or around the Gen X age group. 

In the spirit of ending today’s Juice on an almost wholly positive note. All else equal, AW did well on their property purchase. Others have done even better. 

Housing researcher Point2 recently pointed out that housing values “have doubled in less than 10 years in 68 of the country’s largest 100 cities.” That’s nothing short of incredible. 

One of the most eye-popping cities on the list is Irvine, California. Homes there have gone from $750,000 to $1.5 million, on average, in the last ten years. That’s the most expensive place among the doubles. 

The fastest place to realize a double: Detroit, where prices doubled in just 4.9 years. Granted, you could have scored a house in Detroit for $40,000 in 2019,but still. Second on the list is Spokane, Washington, where prices went from $184,500 to $371,000 in just 5.9 years. 

The Bottom Line: It’s yet another illustration of the haves and have nots economy. Great news for places such as Detroit and Spokane, but what can you really do with that in this housing market? 

On the other hand, if you can walk with mid-to-high six figures from a sale in Irvine, you can definitely move to a less expensive part of the country and buy a downsized property to realize a significant cost of living savings. 

Here again, get in touch with us to relay the ins, outs and quirks of your specific housing situation.

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