Fighting tarantulas for real estate
It’s April 12, 2022. Here’s the rundown:
Is retirement a fantasy for most Americans?
The housing crisis: Fighting tarantulas for real estate
Numbers, links, and faces
Is retirement a fantasy for most Americans?
An interview with an econ professor who says that retirement is “financial suicide” for most people caught my eye.
As an aspiring optimist, I like to think that everything will be okay. However, I’m routinely reminded that it probably won’t be by just about all of my sensory inputs.
Having written about money and related topics for a long time now — offering up advice, expert takes, and aspirational stories and anecdotes — there’s always been something about it that I simply can’t shake: People don’t take the advice given to them, and by and large, eschew (or simply can’t take) the necessary steps to get them to sound financial footing.
After all, the goal, for most of us, is to build up enough of a war chest that you don’t have to work anymore. We don’t all need to be Elon Musk; simply having enough money to enjoy our lives and not have to punch the clock would be great, right?
The issue is that most people don’t have nearly enough to get by after they retire, or are forced to stop working. For instance, the Transamerica Center for Retirement Studies estimates that the median retirement savings for members of the Baby Boomer generation are $202,000. This is the generation that is retiring right now.
Financial planners and advisors that I’ve spoken to over the years have routinely told me that people should have, ideally, something like $1.5 million stashed away before retiring. So, a lot of people aren’t even close.
Of course, retirement savings isn’t everything. You can add in Social Security, other investments, home equity, etc., and people probably have more to draw from than they think.
But there’s no getting around it: Most people don’t have nearly enough money set aside. They can’t afford to retire. Given my generation’s current trajectory of wealth accumulation, neither will we.
With this bouncing around in my mind for many years now, a Yahoo Money interview with a Laurence Kotlikoff, an economics professor at Boston University, caught my eye. Kotlikoff, promoting his new book “Money Magic,” said in the interview that people are retiring too early, not saving enough, and are being steered into a “fantasyland” by the financial industry.
Here are a few choice quotes from the interview:
“A lot of people are just not planning for it. They leave it to somebody else. They're assuming that Uncle Sam and their employer are taking care of them. Then they are surprised when they hit retirement and find that they may not have enough money.”
“In my opinion, the whole 401k retirement account experiment in this country has failed.”
“I think retirement for most people is financial suicide. It's a decision to take the longest vacation of your life.”
These are the kinds of things that you don’t often hear from experts and talking heads but are the types of things that we, as a society, need to hear every now and then. The fact is, we don’t save enough. We spend too much. We think that somebody else is going to deal with the problem (that’s why I bolded the section above).
As discussed last week, politicians are already telling us that we can’t expect social programs to pay out at similar rates in the future. I may not agree with everything that Kotlikoff has to say, but I do think he’s right in that we need to come to terms with the fact that we need to do better.
Fighting tarantulas for real estate
Home prices have skyrocketed, as have rents. Investors are pouncing on every property they can — even in the middle of the desert. What’s the endgame?
I spent one of the most memorable nights of my life in Joshua Tree National Park. After spending the day wandering the park, caked in SPF 150, the sun had gone down, and my friend and I laid out our sleeping bags on some of the monstrous boulders that dot the park. You could see the entire Milky Way — it was unreal, and a spectacle matched only by the stellar display I shared with my wife under Mt. Cook in New Zealand on our honeymoon.
Our plans to sleep on those boulders were short-lived, however, as soon after we had laid out our sleeping bags, a voice called out from the darkness. It was a neighboring camper, who clearly had more experience overnighting in the desert than I had.
“I hope you boys aren’t thinking of sleeping up there! The tarantulas are set to be out any minute,” he said.
I high-tailed it off the rocks and into the back of my buddy’s 1979 Ford Econoline, where instead of gazing at the stars, I stared at a ceiling. I didn’t blame the tarantulas. They were just protecting their real estate. They’re desert NIMBYs, and I moved into their space.
Joshua Tree is a special place (you should go!), and despite how desolate and remote it may be, it, too, hasn’t been spared from the housing squeeze gripping the nation. People have been snatching up property around the park and turning them into — what else? — short-term rentals. From the New York Times:
“Demand for short-term rentals surged by 54 percent between 2019 and 2021, making Joshua Tree one of the top two fastest-growing markets in California and one of the top 25 fastest-growing markets in the United States, according to data from AirDNA, a company that collects and analyzes data from Airbnb and Vrbo. Joshua Tree and the nearby town of Yucca Valley issued 958 permits in 2021, more than nine times as many as they did in 2019, according to San Bernardino County and Yucca Valley data. As of March, there were 2,043 listings in Joshua Tree and Yucca Valley on Airbnb and Vrbo, more than twice as many as four years ago, according to AirDNA (1,818 are on Airbnb, though some are cross-listed).
Over the past two years, the price of the average home rose more in Joshua Tree and nearby Landers and Twentynine Palms than in any other part of California, according to an analysis by The San Francisco Chronicle. One Realtor who works in Joshua Tree said that plots are now selling for quadruple 2019 prices.”
Again, this is playing out everywhere. Another recent New York Times story actually highlighted my hometown, Spokane, Washington, as it has struggled with an influx of homebuyers. I wrote a similar piece, too.
Ten or 15 years ago, the cities getting hammered by this sort of homebuying frenzy were Seattle, Austin, Portland, and Denver. But now? The crisis is engulfing smaller cities, like Spokane, Boise, parts of Texas, and evidently, Twentynine Palms.
From that New York Times story regarding Spokane:
The sharks flee New York and Los Angeles and gobble up the housing in Austin and Portland, whose priced-out home buyers swim to the cheaper feeding grounds of places like Spokane. The cycle brings bitterness and “Don’t Move Here” bumper stickers — and in Spokane it has been supercharged during the pandemic and companies’ shift to remote work.
No matter how many times it happens, no matter how many cities and states try to blunt it with recommendations to build more housing and provide subsidies for those who can’t afford the new stuff, no matter how many zoning battles are fought or homeless camps lamented, no next city, as of yet, seems better prepared than the last one was.
The issue at the heart of the housing crisis is fairly simple: There aren’t enough homes, there are too many buyers, and the people who have homes fight tooth and nail to prevent new ones from being built — both in an effort to boost their own property values (scarcity!) and keep too many people from living near them (traffic, crowds, etc.).
For many people in places like Spokane, too, the idea of living near, let alone in, an apartment building, is out of the question, too (“people in cities live on top of each other like rats,” a relative once said to me). In my experience, many people in smaller cities are used to certain things, like being able to drive just about anywhere within 15 minutes, park almost anywhere for free, and pay relatively little for homes.
That’s why home prices rising 60% in a place like Spokane is so shocking.
I distinctly remember conversations with people that I grew up with centered around how spending $300,000 on a house was borderline insane — well, nationwide, average home prices are nearly pushing $500,000.
And this is happening all over. Take, for example, the viral video from a Raleigh-based real estate agent at an open house for a $250,000 home, which attracted so many potential buyers that they were literally lined up down the block.
Now, add in that rents are going sky-high (nationally, the average rent for a one-bedroom apartment is up more than 24% year-over-year), and there aren’t really many, if any viable options for homeownership for many people, and what do you get? An absolute mess, and one that’s — as I’ve written before — decades in the making.
Another difficult aspect of grappling with the housing crisis is that there are few villains to point at.
Homeowners want top-dollar for their properties. Of course they do. It’s hard to blame them for that. And homebuyers want affordable houses. Of course they do. Neighbors don’t want apartment buildings and gastro pubs next door. Okay, I can understand that, to a degree.
We can direct some ire at investors, who are buying homes in order to flip and then rent out at high prices — more than 18% of homes that sold during Q4 2022 were purchased by investors, totaling more than 80,000, and a 44% increase year-over-year.
Image source: The Washington Post
Investors are chasing profits. Of course they are. That’s what investors do. From Realtor Magazine:
“While record-high home prices are problematic for individual home buyers, they’re one reason why investor demand is stronger than ever,” says Sheharyar Bokhari, Redfin economist, about the study’s findings. “Investors are chasing rising prices because rental payments are also skyrocketing, incentivizing investors who plan to rent out the homes they buy. The supply shortage is also an advantage for landlords, as many people who can’t find a home to buy are forced to rent instead. Plus, investors who ‘flip’ homes see potential to turn a big profit as home prices soar.”
This is much like our healthcare system. People need healthcare. People need homes. If you can buy it all up, and make it scarce or hard to access, you can charge pretty much whatever you want for it.
This is why I was charged $29,000 for a single dose of medication. Why wouldn’t they charge that much? What am I going to do, go buy it from somewhere else? Similarly, why not list a fixer-upper in Boise for $500,000? What are homebuyers going to do, especially when their neighbors and local government won’t allow anyone to build any new homes or buildings?
Well, naturally, they pick up and move to a more affordable city, where they can buy a home. That city, then, becomes more unaffordable, and the cycle repeats.
Unfortunately, I don’t see an easy way out of the housing crunch. Sure, rising interest rates should cool things off — that’s what they’re designed to do, after all, by dissuading homebuyers from borrowing with higher costs. But people still need to live somewhere, and when the rent is too high, and buying is out of the question, where are they to turn?
Another element that I think is important to keep in mind here: Homeownership has, traditionally, been one of the most sure-fire ways to build wealth in the U.S. Between 2010 and 2020, homeowners gained more than $8 trillion in housing wealth, according to the National Association of Realtors.
But with the current trend of offloading homes to investors, who evidently have more money than they know what to do with, that wealth is simply going to be sucked up, rather than passed along to the next generation. And consider how much money the investor class is also set to suck up from the Silent and Baby Boomer generations in the form of skyrocketing healthcare costs. In effect, a lot of Americans’ wealth could find its way surely and steadily streaming into the pockets of the wealthiest among us.
As for where people will be able to go to be able to afford to rent or buy a home? Not even the middle of the desert is an option anymore, as we know from what’s happening around Joshua Tree. Before you know it, we’ll all be sleeping on rocks, fighting the tarantulas for real estate.
Numbers, Links, and Faces
45%: The increase in vehicle collisions in Virginia between the spring of 2019 and spring 2020, because the pandemic evidently turned everyone into maniacs behind the wheel. (Bloomberg)
24: The number of languages a D.C.-based carpet cleaner is able to speak. (The Washington Post)
$12 billion: The cost of a proposed “stadium district” that Oakland A’s ownership is demanding that the City of Oakland builds, including a new stadium, lest they move the team to Las Vegas. (The Ringer)
The next budding health crisis: Scientists are finding plastic in people’s lungs. (Science of the Total Environment)
“Be more inclusive and equitable…be bolder…be kinder”: Finding ways to reinvent the retirement system for a population that’s living longer. (Quartz)
Frowny Face: A tough read on how fast it can all go downhill, and inheriting generational debt. (WaPo)
Smiley Face: Ice cream drone deliveries are on their way. (Wired)