Millions of Young People Shut Out of the Housing Market

[Andrew M.]

Interesting article in the NY Times today about how a lack of young first time home buyers is affecting the market, either by them being shut out or just choosing not to buy homes.

Tight lending standards and shortages of affordable housing have reduced the pool of potential buyers particularly among young people. This means less demand for starter homes which prevents those homeowners from being able to "trade up". This causes stagnation in the market.

Just wondering if anyone has seen this to be true in their area and if you think this trend will continue. If so, how should that affect RE investment strategy?

[David Faulkner]

Shut out? Sounds like a bunch of overly dramatic sour grapes to me. Young people have the opportunity to buy any property on the open market just as anybody else can ... they are not being shut out of anything. If they can't afford the property at market price, then that is too bad, they can choose to rent, or choose to move to a less expensive market, or choose a more modest starter home that needs work, or any number of other alternatives ... if nobody can afford the price, then the price goes down until you have a willing and able buyer and a willing and able seller that come to an agreement, or else there is not transaction. That is the way the free market works.

What else is supposed to happen? Should the seller lower the price below market just so young people or any other specific group should afford it? Should the government subsidize them so they can purchase a home that they can't afford? ... we already saw how well that works ...

What I've learned living in SoCal all my life is that there is an incredible amount of wealth in this world, and that wealth has a tendency to concentrate not only into the hands of a few, but also in geographic areas down to the neighborhood, so it is actually quite amazing how far the prices can go if there is a persistent confluence of these factors that attract wealth to come together. This is a valuable thing to understand.