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Bizarre New York Times Article on Lousy Finances of the Young Gives Undue Prominence to Housing as an Investment

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It may seem churlish to hector the New York Times for turning its attention to the sorry financial prospects of the young. But this sort of attention would be more useful if it shed more light, rather than wistfully evoking standards from the old normal.

The article last week, Younger Generations Lag Parents in Wealth-Building, points out that your typical “young” person, as early 30s or younger, is behind on wealth accumulation compared to previous generations. That’s hardly surprising, given the combination of the fall in home prices for those who purchased before the bubble burst, high student debt loads for many, stagnant wages, high unemployment, and short job tenures (any unemployment will at least lead to no savings, and will often lead to loss of savings).

This is the peculiar premise of the piece, which comes after the obligatory anecdotes:

Strong and sustained job and wage growth would cure many of the ills facing younger workers, experts said. But their delayed or diminished wealth accumulation might still have a lasting impact on their finances.

Huh? How do you “accumulate wealth” if you can barely pay the bills and have at best only a meager emergency reserve above that? Are you supposed to speculate in options and hope you get really lucky?

You get similar layered hidden assumptions, such as (emphasis ours):

For instance, the researchers said, if a person delayed the purchase of a home to age 40 instead of buying at age 30, that might result in a $42,000 loss in home equity by the time she reaches 60, given trends in wealth accumulation over the past few decades.

One fellow financial writer pinged me, incensed at the premise that buying a home was inevitable and a preferable way to invest (this individual is a happy long term renter). And I have to say my parents’ experience bears that out. My mother has a decent-sized retirement amount, even though they rarely owned a home before he was 45 (we moved frequently, a couple of times lived in company-owned homes, rented while he went to business school at an advanced age and again much later when we moved to a community where there were no suitable homes to buy but some decent rentals). She’d been in the home they live in now for 36 years. I calculated the appreciation after brokerage on the likely sales price and it’s only 2% compounded, a negative return in real terms. The overwhelming majority of her wealth is liquid, and that’s a lot more comfortable than being real estate rich and cash poor. (Mind you, my father never had a great income or big corporate pension, but he was very parsimonious and so saved a lot, plus did form his own little company when he was 50 and socked a ton of his income into a pension plan he set up then).

Purchasing a home makes NO sense if you wind up selling it prematurely, say due to moving to find another job or due to divorce. Brokerage and other sales costs are 5-7% of the sales price and hard to avoid (homes sell themselves only in bullish markets; brokers are hard to circumvent in less robust markets).

And why would buying a home at 30 be preferable to renting and using the money you’d spend on buying a home on investing? You have to believe the returns on home ownership are superior to that of other types of investing. Now they might well be, but the seemingly superior returns of real estate are due primarily to the assumption of appreciation combined with leverage. But leverage also increases risk and with short and unstable jobs, homeownership has downsides that this article completely ignores. The big benefit of housing is as a forced saving vehicle, but banks have made it so easy to extract equity that this virtue of home ownership has also been substantially diminished.

Finally, the article ignores the other elephant in the room: with ZIRP, asset prices are inflated, by design. A young person is going to have trouble amassing any kind of nest egg because the financial returns aren’t going to be there unless they are a very skillful or lucky investor. The most important principle of investing is “buy cheap” and that is perilously difficult to do right now.

This is another indicator of the backwardness of the point of view of the article:

With the wage and jobs picture bleak, and fixed pensions largely gone from the private sector, the answer to the conundrum of shoring up savings for younger workers might lie in new government policies, the Urban Institute scholars said. They suggested encouraging retirement accounts by making them automatic unless an employee opted out, or modifying the home mortgage interest deduction to push more money toward homeownership for lower-income workers.

You can’t get blood from a turnip. And you can’t have meaningful savings with crappy incomes. The answer is much more aggressive policies for job growth and support of labor bargaining power. But the Times could never bring itself to challenge the neoliberal paradigm of squeezing labor to provide more returns for the few who actually do have dough.

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137 comments

  1. Conscience of a Conservative

    I thought the article was more balanced than you implied.
    They hit a number of bullet points , lower take home pay, delays in buying a home coupled with the math of compound interest, student loan debt, demographic unemployment rate.

    And as far as the home thing, I bought my first home a dozen years, ago. Traded up ten years ago with the capital gains protected, and in that time benefited a little from tax deductions and saw income freed up after paying off my mortgage, saw my home double in price. And lastly the cost of up-keeping my home increased less than what would have been the case if i rented a comparable home.

    1. from Mexico

      If you bought your last house 10 years ago and have seen the price of your house double, you have beat the average.

      Here’s a graph of the Case Shiller composite indexes, and after a wild roller coaster ride, prices nation-wide are currently just about where they were 10 years ago.

      http://2.bp.blogspot.com/-8A14iF9hA_E/T3G8h_G3ySI/AAAAAAAAMk4/QSBf4bcq0gI/s1600/CSJan2012.jpg

      If there are markets like that in which you live which have beat the average, that means there are other markets which have done worse than the average. That means that in some markets, prices are now lower than they were 10 years ago.

      One should not generalize their own experience to that of others, nor should they mistake dumb luck for skill.

      1. from Mexico

        Ah, but I forget that in the bourgeois ethic good look is synonymous with virtue.

        According to bourgeois standards, those who are completely unlucky and unsuccessful are automatically barred from competition, which is the life of society. Good fortune is identified with honor, and bad luck with shame… The difference between pauper and criminal disappears — both stand outside society. The unsuccessful are robbed of the virtue that classical civilization left them; the unfortunate can no longeer appeal to Christian charity.

        – HANNAH ARENDT, The Origins of Totalitarianism

        1. jake chase

          “I’d rather lucky than good,” – Eddie Stanky, 2nd baseman, Boston Braves and New York Giants.

          1. jake chase

            Of course that should be “I’d rather be lucky than good.” Typing remains a challenge in these little boxes.

          2. Moneta

            Kids instinctively know that luck is more important than anything else. Just play a game of snake and ladders and notice their reactions when they lose.

            We teach them some skills to help protect them against bad luck but somewhere along the way we actually get deluded into thinking our skills are more important than luck. LOL!

      2. Leviathan

        You are onto something. What my generation (xers) proved is that you can be doing relatively well, accumulating wealth “on schedule” and then be struck collectively by a financial tsunami and knocked back to zero. It has happened to millions of us. I wouldn’t weep for the young. A few bad decisions on Washington or shenanigans on Wall Street and they may yet be “saved”, most likely at someone else’s expense. It is the new kapitalist model, komrades.

      3. Moneta

        I’m not holding my breath. I’m Gen-X, have saved and paid off my house… but I fully expect the boomers to squeeze me dry over the next 2 decades. If it does not happen, it will be a gift.

        I don’t expect to retire and keep on honing my skills making sure I can work as long as possible. If I can retire, it will be a gift.

        Some generations die in wars and others get to party… not sure Gen-X gets to party.

        1. cwaltz

          No. I’m pretty sure a party is NOT what Washington has planned for us lucky ducks that placed an extra couple of trillion into the system because St. Ronnie said we needed to in order to secure our retirements in the future.

          $%#@

          I’m not even 50 and they’re already planning on taking the extra money they took and using it as a perpetual slush fund for Congress.

          Why can’t they “roll over”the Fed’s publically held debt. If anyone DESERVES to be screwed it’s the banking industry.

          1. Moneta

            It will but not on our schedule.

            I was angry a few years ago but I’ve passed that stage of grief. I now focus on what I can actually control. I saty informed because it hekps me determine what I can and can not control.

        2. Michael Fiorillo

          Don’t get taken in by false appeals to inter-generational warfare.

          It’s not about young versus old; it’s about the Overclass versus everyone else.

          1. Moneta

            I think the tug-of-war will be between the West and the East, the 1% and the 99% and the old vs. the young.

        3. different clue

          Which Boomers will squeeze you dry? “Elder”boomers or “younger”boomers? And which social classload of Boomers will be the one to squeeze you dry? Upper Class boomers or Lower Class boomers or all classes of boomers equally?

          And how will they do that? In detail?

    2. Yves Smith Post author

      I have to differ in that even though they mentioned all those things, they kept acting as if better investing was somehow the answer. Presenting the evidence that the problem is crap incomes and recommending the wrong remedy is in fact a big part of the problem. There is no remedy other than attacking the wages issue directly, which in turn is the result of companies refusing to share the benefits of productivity gains with workers. Kennedy was prepared to make that law if the rogue corporation US Steel refused to comply (by contrast, the auto companies were happy with this solution, which was embodied in a relatively long-lived understanding called “The Treaty of Detroit”).

      The Times is either too intellectually captured or too chickenshit to highlight the obvious conclusion from the information it presents. Making it about worker investment shifts the blame to individuals when their lousy balance sheets are a reflection of broader policies.

      1. Conscience of a Conservative

        One of the problems is what Robert Samuelson wrote about recently in the Washington Post, “America the retirement home”. Federal retirement programs, led by Social Security and Medicare, are crowding out most other government spending.

          1. from Mexico

            And the way America provides healthcare — private providers paid by either private or public insurers — has to be one of the greatest follies ever devised by humankind.

            Great Britain, in comparison, spends less than half per-captia on medical care than the US, and by any objective measure provides a higher quality of healthcare.

          2. joel3000

            American medical system can do a lot for you once you’re sick. Lots of advanced treatments and state of the art pharamaceuticals.

            Once they get their claws on you they’ll get you hooked for life, and your death will get you the grand slam treatment – millions of dollars for your last couple months as they throw the whole gamut at you, for what? Oh yeah, for your healthy.

            What they can’t seem to do is keep people from getting sick. Even their vaccines are getting sketchy.

        1. Ptup

          No, Conscious, the problem is actually “America, the home of debt slaves”, which is the point here. Let em ask you, since you are arguing for home ownership and talk about your “gains”, when are you going to be able to cash in or liquify those “profits”? Fine, your home has doubled in price, like many over about 25 years, but, how will you be able to use those “forced savings”. You gotta live somewhere. Fine, you sell the home, then what? You are now shopping in your local market where all other homes have doubled in price, right? Maybe you find something smaller, but, really, was liquifying maybe at the most $100,000 worth it after transaction costs and all of the hassle? So, you look elsewhere in the country for a much cheaper market. Do you really want to move a few thousand miles from long standing relationships and relatives to a place like, um, Reno, or, Florida, or Phoenix, or, some little town in North Carolina where you don’t know a soul and the local culture may as well be something out of a novel to you? Probably not. And most older people agree – they usually stay put, and, the adventurous ones usually boomerang back before death, if they can.
          American seniors will have an awfully hard time surviving over the next two to three decades due to their debt addictions and lack of any kind of savings. Don’t cheer on the generational war thing by claiming that Social Security, of all things, is “crowding out” all other spending. 75 million Boomers over a thirty year period are going to need every meager cent in their SS checks to simply survive, and, if they have any left over, maintain their MacMansion they went into too much debt for all of their lives.

          1. Conscience of a Conservative

            Several ways.
            1) First since I’m not renting money, the cost of staying in my home is far less than rent
            2) I have the option of downsizing, renting or taking out a Reverse Mortgage in the future.

          2. Tiercelet

            You think you have those options. But how will you exercise them when housing prices fall? Who’s going to give you that reverse mortgage when the underlying home value drops? How will you downsize if there’s nobody younger than you who can afford to upgrade themselves?

            As for “renting money” yes it’s an enviable state to not pay interest. But the whole point of the trend reported is that young people can’t afford a down payment because they can’t accumulate wealth, especially in the face of an inflated housing market. So here something has to give: either the young don’t get to compound gains while not paying rent (of money or home) or the older generation has to lose paper value, and possibly life savings. We know which one got picked so far, but your personal good fortune (if you can keep it) doesn’t change the underlying logic.

          3. Ptup

            Conscious, as far as the cost of owning vs renting, I’d love to know where you live, because, in my neighborhood (Upper Westchester county, NY) I couldn’t imagine buying anything near the quality of my rental for the same monthly cost. Property taxes alone are going up about 10% a year around here, and, when I shop around for maybe a cool little farm property upstate in what otherwise is a very depressed economy, the property tax hike history over the past decade pushes me back like opening up a door to a burning house. Good luck with that one. My landlord, btw, like most smart landlords, hasn’t increased my rent for five years, mainly because I am a very low maintenance tenant who always pays on the first. I know that won’t continue forever, but, still, I don’t see half the inflation of owning one of these houses. And, I spend my weekends at leisure, not on a lawn tractor or at Home Depot.

          4. cwaltz

            @conscience of a conservative

            ) First since I’m not renting money, the cost of staying in my home is far less than rent

            Keep repeating that because it’ll come in useful when they’re configuring that Chained CPI for senior citizens. Of course, it ain’t going to help much when your property taxes go up because the evil Uncle Sugar is paying down his debt and not letting states and municipalities mooch off him any longer.

            I have the option of downsizing, renting or taking out a Reverse Mortgage in the future.

            That’ll come in handy when they manage to privatize Medicare. You’ll be able to cover the difference on that voucher the government gives you for medical coverage for a year or two.

            I think anyone in Average America is fooling themselves if they truly believe they are prepared well for retirement. What a choice? I can advise kids “invest” in rich people gambling and cheer when they ship your neighbors job overseas to whichever indigenous people is next on our exploit list or I can tell them buy a house that’ll take you until retirement to own so you can get a reverse mortgage on it. Peachy.

          5. jake chase

            North Carolina beats Florida all to hell. Don’t knock it if you haven’t tried it.

            Warning to all you long hitters: the yards are longer down here and every second shot is up hill 40 feet.

        2. Tiercelet

          Crowding out other govt spending–oh, because obviously government spending is an amount fixed for all time at the beginning of creation, rather than a political variable entirely under the control of the democratic process…

        3. from Mexico

          @ Conscience of a Conservative

          And it was not lost on me how you deftly switched the conversation from talking about what’s going on in the private sector to what’s going on in the public sector.

          The subject of this post is about what’s going on in the private sector. And what’s going on the private sector is this: 30 years ago capital garnered 17% of the nation’s aggregate income pie. Now capital’s share has almost doubled, to 31%.

          http://www.taxpolicycenter.org/legislation/upload/x-1-11.pdf

          That doubling in capital’s share was taken out of the hide of workers.

          1. jake chase

            Sorry, Mexico, but most of that 31% is going to rent, not capital. It represents a return on privileged connection to the FED, Gomint, land ownership. Believe me, it isn’t going to capital. Owners of capital are being systemically looted, just like workers.

            Don’t feel bad, though, almost nobody understands what is and isn’t capital. Read Henry George, Progress and Poverty. He weren’t no academic, but he knew what was what.

        4. sierra7

          I don’t see SS, or other social spending, “….crowding out” military spending, (wars) and our “black budgets”!

        5. Teejay

          Isn’t Social Security self funded? So how can it “crowd out” other government spending? Aren’t you conflating the two?

          1. different clue

            Actually, SS was MORE than self-funded. Ever since 1983 it was DOUBLEfunded. The FICA tax was raised on the theory that that money would be PRE-SAVED for the Boomers who were being PREtaxed that money which would be PREpaide on their behalf INto the SS trust fund.

            So not only is SS self-funded, it is DOUBLE PRE PAYED for.
            The problem comes from the fact that the General Budget Government has been STEALing FROM SS ever since 1983. That’s what the sole and only purpose of those special on-SS-behalf Treasury Bonds was. That was money looted FROM us boomers who have been PREpaying it ever since 1983. The intention right from the start was to NOT pay us our benefits. But because those bonds are just as legally binding as any other bonds and legally have to be redeemed one way or another, various false accusations against SS and boomers are being faked and hyped in order to shape the political battlespace for a successful aggression against SS and the boomer who have PREPAID into the Trust Fund ever since 1983. The shape of the aggression is to lie about how
            the SS payouts on which the whole 1983 FICA tax rise was predicated now can’t be afforded after all . . . not without restoring the missing taxes against the Tax Cutted OverClass who stole all our SS Trust Fund PREpayments in the form of “Bush-Obama Tax Cuts”.

            That’s why Joshua Micah Marshall referred to the whole “1983 SS Rescue Plan” as a “straight-up two-step con”, back when he was pretending to care about Social Security.

          2. Ms G

            @Different Clue.

            Thank you. Are you and me the only two people that actually register this fact? Sometimes I think so.

          3. different clue

            Mrs. G,

            Aquifer also registered that fact. He hasn’t commented here lately. I hope he comes back. Others register that fact I am sure, but perhaps they need the encouragement of “other” others saying it in threads like this one, over and over and over again. And of course Joshua Micah Marshall also cared about this, back when the overt threat to SS came from Republicans. Now that it comes from Obama and the Catfood Democrats, Marshall fully supports the “straight-up two-step con”.

            And Franklin Roosevelt and his brain trust wrote the SS system into law and FICA-funded revenue stream existence to begin with so that I and others like me would feel this way about it.

            I PAID for that entitlement!

          4. Ms G

            Yes. David Cay Johnston realized the importance of this MAJOR fact, also.

            The 1983 Greenspan Commission was a massive con on all of us — straight up stealing under the guise of “prepaying” — and now that we know Alan Mr. Magoo Greenspan’s number, is it any surprise? He was just the Fraud Maestro for that particular massive looting.

            I’m really shocked that this isn’t widely common knowledge and sometimes wonder that if even 1 million people focused on this there would finally be mobs overwhelming the offices of Congress Tools.

          5. Doug Terpstra

            DC and Ms G. You have ample company here at NC; surely most readers know that Social Security is prefunded, solvent for the next 25 years at least, and is not a budget item at all. It has no place in “sequestration ‘negotiations’”.

            This is what makes Obama’s theatrical campaign to “strengthen” or “protect” it such a despicable Grand Betrayal. People should understand this clearly. Neither he nor anyone involved in this treachery can remotely claim ignorance of these basic facts, so their complicity in the theft also carries the charge of malice aforethought. If these people were ever held to proper account, the price would be high.

          6. Bill Smith

            Ms.G “Thank you. Are you and me the only two people that actually register this fact? Sometimes I think so.

            Pete Peterson is betting there are no witnesses.

      2. Moneta

        Too captured.

        When I talk about the stuff in your blog with people around me, their eyes glaze over.

        They sense something is off but most people do not understand our financial system and can not grasp the big picture. And they don’t even want to listen. They prefer to keep on blaming parents for not disciplining their kids properly.

        In the big banks experience, half the executives know what is going on and pretends to be clueless and the other half are clueless perma-optimists.

      3. Dave

        I cannot remember how many times I have seen and heard folks state that companies should share productivity gains with workers. Productivity gains are usually the direct result of investment in new technology by the company. They spend a lot of money in order to use machines to replace employees. Only a few of the affected employees actually spend their own money to improve their own productivity.

        Get used to it! The digital revolution has happened, and many hard working folks are being replaced by computers and robots. A key factor is that roughly half of all people are below average in intelligence. How can they learn a highly technical skill? And if they could, there would then be too many highly skilled individuals.

        1. rob

          doing what?Productivity gains belong to companies, not employee’s. and one groups productivity gain, is really due to another groups productivity.While computers and robots replace/suppliment the work of some;it is due to whole other workforces that are now needed;i.e. IT staff, Robotics mechanics/tech source manufacturers,etc.The big equation is the same.The executive periphery is keeping too much, labor is getting too little.This long stemmed problem that has been gathering force for the last forty years, is leaving the economy where it is.
          deregulation,outsourcing,free trade,trickle down…. it is all part of the same group of bad ideas. Ideas that have proven themselves to be bad ideas. Ideas that if people who still hold them,show themselves to be “lacking the powers of observation”.

          1. Ptup

            Sorry rob, it’s not a zero sum game. I can speak from personal experience. What I do on a Mac tower and monitor was once done by at least 50, maybe a hundred people in 1980. My work life is near it’s end, but, for most of it, it’s been constantly attempting to stay one step ahead of this technology tide, and, with some work and luck, I did it, watching many people fall to the wayside.
            Do your math. What sense does it make to have a whole support staff of It and operators behind the robots. Defeats the whole purpose, right?

        2. jake chase

          Yeah, next thing you’ll tell us is those productivity gains are due to the business school genius of swaggering CEOs in thousand dollar shirts, most of whose time is spent mouthing bromides, fondling secretaries and getting worse at golf, but pull out ten million a year destroying one company after another, turning their company’s products into drek manufactured by Third World incompetents, who may be ripping off the companies even more than they are screwing native labor.

          Sorry Dave, kool aid doesn’t go down here, unless of course it’s imported from Mexico.

        3. sgt_doom

          Gee whiz, Dave, speaking as the original coder of the hyperlink (perhaps you’ve run across it, sonny?) and on the development teams of both the X.500 and X.525 protocols (and various software development and the guy who solved the mysterious industry-wide mainframe printer problem back in the 1980s) and now only able to obtain the occasional day labor, I think you are so full of hooey you are either one of the whacked-out followers of either von Mises (and Rothbart) or Lyndon LaRouche (or are they one and the same group?).

        4. rob

          actually to PTUP,
          The work you are doing now that was done by maybe fifty in 1980.Really, What kind of work?paperwork?design?record keeping?.While obviously, people on your floor may have gotten fired/layed off.Who ever is assembling that mac tower and monitor.The harness makers.The robotic machinery makers for the plant that stamps the shell.The laser cutters.The refrigeration technichians who have to keep the “clean room” somewhere..clean and cool… What ever it may happen to be for any particular persons experience…it is an exponential growth of job titles that enables “fewer” people to do more.(the offshoring and third world wages and no regulation/protection cost savings which go again to the executive staff,not withstanding)
          And the idea of not having “maintenance techs”, is surely not serious.
          If your equiptment goes down.YOU are not doing anything.If the electric grid is down.YOU are not doing anything.If Any part the enviroment you operate in doesn’t “work”,YOU aren’t doing anything.
          SO, no zero sum gain…. but that is still what goes into these supposed “productivity” gains.It is just a re-allocation of work.Doing the math means looking at what goes along with any individuals inputs.Which in my mind, wouldn’t be a bad thing.
          The problem for the newest generations ,as related to this article, is that all that extra work is being done by the cheapest possible alternative,namely someone who doesn’t need a degree from an american institution.
          And the problem here is that the population is still being “taught” all the old marketing ploys, like “this is an investment”, “it is worth going into debt for”;be it an education,or a house,or the latest technological gadget and/or its software application….but these values on exist only in relation to whatever the last pricetag was.THe intrinsic value of anything,even “real’ things, like real estate,technical knowledge,tools,etc…can be “not much” real fast.
          While people who really are just ‘counting beans”, are not all outsourced yet.But ,considering there really isn’t anything, a white collar worker can do, that can’t be done by a bright lad from india for $5,000 /year..it will be.
          In my mind, Bright people come up with new ideas. They implement new strategies…. It is the not so bright who are relegated to “doing technical work”, which has all been done before, and really will continue to be done over and over and over again.
          These are systems we are living in. We make up these systems.FRankenstein may have been a bright fellow, but his monster is on a tear.And this 21st century is the monster created by the frankensteins/establishment/monied elites who gathered and wield the universal corporate control of everything,

          1. Ptup

            I’m in graphics, and Macintosh computers don’t break. If they ever do, which I’ve seen less times than the fingers on my right hand over thirty years, they just wheel in another one. Like when something in your car breaks, or one of your major appliances. Labor is so cheap, that it isn’t even worth it to repair things. And, IT software support more and more is doing a google search, believe it or not.
            Every year they are inventing new hardware and software that kill jobs. The IPad was the holy grail in 1985 in my industry. No printing of newspapers and magazines, and no delivery costs, and, it looks fantastic. That’s thousands of jobs you are holding in your hand when you operate that tablet. Thousands and thousands, and, for the life of me, I really can’t see what jobs were created by it except for the Foxcon slaves and low wage Apple store workers.

          2. jake chase

            Rob, you have absolutely nailed it. What technology does is allow well positioned but myopic keyboard jockeys to collect rent for imbedded work of faceless others, many of whom are exploited, others of whom were previously expropriated. Not sure what can be done about this apart from deflating these jockeys when they stick their heads up to crow. But, of course, that’s something.

        5. Yves Smith Post author

          I see you have never been within hailing distance of a corporate cost cutting project. The cost savings rarely if ever come from “investment”. They come primarily from:

          1. Selective degradation of service to customers

          2. Making staff do 1.5-2x the work for the same pay as before. I’ve seen that happen, explicitly, with a lot of mid-senior corporate jobs, with people disappeared and the role they had assigned to 1-2 people who already have existing, bona fide full time jobs.

          1. Dave

            Ms. Smith,

            I have “been within hailing distance of a corporate cost cutting project”. I own a small manufacturing corporation. It is a constant battle to cut costs, which is necessary due to government interference, regulation, and international competition. I do this with computer operated machines, just as you cut your costs with your computer which gives you access to the internet and word processing power. How many employees would you need to accomplish what you now do pretty much by yourself with a few helpers?

            What people lose sight of is that our prosperity up until the last 30 years was due almost solely to WW II. We were the only major country to have an improved manufacturing base and a consumer group able to afford and eagerly seeking the production from this huge capacity after the end of the war. Consequently, the majority of our citizens have been spoiled rotten up until the last 10 years.

            Now that the situation is much less favorable, folks who had assumed that they were entitled to a grossly unrealistic standard of living for the rest of their days are pissed. Well, welcome to reality!

          2. Doug Terpstra

            Dave, as a small businessman I have no doubt you’ve encountered a maze of hurdles and toll booths. It happens under the heel of corporate government, aka fascism. Small business, the working and middle class have all been savaged by finance and neoliberal globalization. But your uniquely fortunate timing within the bubble cycle is an anecdotal exception that does not negate the premise of the article at all or support NAR boosterism. The housing recovery has no legs; it’s Fed a bubble rebound.

            And this, stated so matter-of-factly: “…our prosperity up until the last 30 years was due almost solely to WW II” — prosperity thru war — is dangerously absurd. Why then haven’t the recent perpetual GWOT quagmires boosted our prosperity beyond “historical” precedent — especially with our military-intelligance-security budget more morbidly obese than ever? War brings misery, not prosperity. http://www.youtube.com/watch?v=tGoH3D1IhI8

            Yes heavy public spending primes the pumps and boosts employment, but slaughter and destruction is a very poor investment channel compared to IT, energy, space, transportation, education, health and urban development. Similarly, Paul Krugman suggested that preparing for an alien invasion (ET) would also be stimulative, but clearly ridiculuous as a long term commonwealth investment. Even conservatives have debunked the myth of wartime prosperity:

            http://www.fee.org/the_freeman/detail/the-broken-window-fallacy-writ-large-and-dangerous#axzz2NwtJmQvm

            http://www.swifteconomics.com/2009/03/21/war-is-not-good-for-the-economy/

      4. sgt_doom

        I have to differ in that even though they mentioned all those things, they kept acting as if better investing was somehow the answer.

        Thank you, and exactly, Ms. Smith!

        Just as CNN, this early Saturday AM in their finance segment, blithely mentions that one-half of Americans are poor (let me repeat that, please, according to the latest census data, one-half of Americans are POOR), then segue to their investment advice that since soooo many Americans own a house, an auto and have investments (but they just stated that one-half Americans are POOR????), etc., ad nauseum, to the infinite fantasy….

        The Great Deleveraging (especially with no FDR on the horizon) will now take not 20 years, but long into the unforeseeable future.

    3. bulfinch

      Eh – you’d have done better sticking that downpayment money from a dozen years back into a solid baseball card collection and renting an equivalent space to what you purchased.

  2. jake chase

    Financial advice is generally useful only in retrospect. Every individual has to do the best he can in the environment in which he finds himself. In my generation, home buyers and breeders did pretty well. In the next, indexers and home buyers did great, if they got out in time. This generation faces a depression which may last twenty years, even if it is accompanied by magnificent appreciation in the stock market, as it may well be, unless something unexpected happens, which it probably will.

    One thing I am pretty sure of: college and graduate school are no longer a good investment, unless a student emerges with the best of credentials, and even then it’s a very slimy route to the top, with lots of black holes and shaky limbs and maniac bosses demanding the impossible at least and the criminal more often than not.

    Probably better to become a skilled tradesman and live in your car. Get the phone number of that foxy lady described in Sunday’s dreamboat post. Ask if she has any like minded friends.

    1. Art Eclectic

      I disagree that college has become a poor investment. Now, I will say that high end colleges that will put a student in tens of thousands of dollars in debt are a poor investment unless you’ve already got your ticket for the executive suite.

      A smart student sticks local and cheap. College graduation is still a prerequisit for just about any decent job. College is the way the businesses of America test IQ and employement suitability since employers aren’t allowed to do it.

      The bottom line is that most people will not get any kind of decent paying job without a college degree. So, the smart game is to school local and school affordable. The not-smart game is to rack up six figures of student debt in a job market with stagnant wages.

      1. jake chase

        You’re right to avoid the pricey colleges, but I suspect most of the “management” jobs won’t be worth having.

        Instead of ‘up or out’, the next wave will be just out. Experience is no longer valued as work is increasingly dumbed down. Management can be outsourced too, and it will be, sure as shootin’.

        1. Art Eclectic

          Maybe. But you know, any job (management or no) is worth having to someone who’s got bills to pay and a roof to keep over their heads.

          1. jake chase

            Unfortunately, just because you need the money doesn’t mean they have to keep paying you. The career job is probably history. Like it or not, a person needs skills and knowhow he can leverage himself, without a corporate boss.

            Three of the most successful (and smartest) men I know under fifty never went to college. One attended a trades high school and now builds swimming pools, although he works two days a week as an EMT to get employer health insurance for his family, another started with a job sanding surf boards and now is an independent business man sent all over the world by several design firms to install window treatments for ultra rich clients, the third runs a computer programming business serving business clients in Palm Beach.

      2. sgt_doom

        College is the way the businesses of America test IQ and employement suitability since employers aren’t allowed to do it.

        Oh wow, Art! The “Father knows best” syndrome (or the gods really ARE running things, after all?)!

        Yeah, like dood, businesses haven’t demonstrated an ounce of meritocratic hiring in my lifetime, and the closest I’ve yet to observe of a meritocratic environment was the US military during the draft (ergo, I’m kinda old, dood!).

        Plent of employers give IQ tests, ask illegal age-related questions (Pepsi, on many of their web sites, won’t allow the applicant to go beyond their birth date point if they even attempt to skip it).

        Get real, please, or forget any future comments.

      3. Ms G

        Have you been keeping up with the price of public university educations? Google “california” and relevant terms. In the past 8 or so years, tuition at what used to be one of the finest state university systems has skyrocketed and is now out of reach of many unless they incur debt.

        Your solution is therefore facile.

        1. jrs

          Oh it’s facile all right. In community colleges in CA you can’t even get classes and they aren’t so easy to get at the universities either. But take 6 years to get that degree it’s still a good investment right? This is what “go to the public colleges” actually means in a time of state budget cutting.

  3. MB

    William Bernstein in “The Investor’s Manifesto” shows that owning a home is NOT a good investment. A very convincing presentation and along with John Bogle probably the only investment advisor I really trust. I recommend this book to all young people (and older folks too, but the young really need a decent book on the long term investing perspective). I agree with Yves, this article misses the main problem.

    That being said, I’m really sick of the constant presentation of the “get rich quick” mantra in our society. Just like 100 or 200 years ago, You become wealthy by saving a little every day and living below your means. It’s the shrinking of the means that is the problem and that constant saving. I nearly died 5 yrs ago when a new college graduate, who had no debt (parents paid for a reasonably priced state school education), told me she couldn’t afford to save. I said not even $20 a week?? Compound that over 40 years and you have something. You have to LEARN to save, that is also a lesson that isn’ t being taught.

      1. cwaltz

        $20 a week Thorstein………not $20 over 40 years. :)

        Although I will say this….My daughter got told it will cost her $2500 to have her 4 impacted wisdom teeth removed. That’s over 15% of her before tax income and I’d bank money on 20% of her after tax money.

        It’s really easy to say “why can’t you save $20 a week?” It’s less easy to figure out how a young person saves when they have incomes under $20,000 before the government gets it cut AND affords things like housing, food, utilities,etc,etc. Many of this generation are essentially forced to live at home to “live below their means” they can’t afford much else.

      2. jake chase

        Here’s the truth, like it or not: if you want any decent chance to accumulate capital, get out of the corporatized work force and make yourself a business. I know that doesn’t resonate with the ‘fairness’ posse, but it works. Working for wages doesn’t, unless you end up a vice president that doesn’t get axed.

        1. cwaltz

          When you consider the failure rate of small businesses then you realize even that choice is a giant crap shoot. Unless you make it to “too big to fail” status things are looking pretty grim for this generation.

        2. Ms G

          Also, setting up your own business, unless you have some clever off-shoring (or other tax avoidance strategy) means you pay 100% of FICA and are forced to pay unemployment tax even though you are not entitled to ever collect unemployment. Never mind that the IRS filters aggressively to audit small sole proprietorships (or small “inc.” or “llc” s.)

          1. jake chase

            Taxes are a nuisance, but you can’t let them run your life. If you don’t play the game you can’t win. There isn’t any easy option, is there?

          2. Ms G

            When “nuisance” turns into what eats into your ability to financially continue your business (ROI, and all that), it’s not really a question of just “swatting them away.”

            But thanks for the gung-ho advice! Maybe you know some good tricks to avoid that rather hefty cost-of/barrier-to entry into private business.

          3. jake chase

            Mrs. G, I’ll tell you what I know. Choose something within your capabilities. Target your market as specifically as possible. Do as much as you possibly can yourself. Spend as little as you can manage while doing it. Forget about weekends and holidays. They exist only as opportunities to get more done. Master whatever technology you need. Your only advantage will be low costs and reliability, but there are hundreds and perhaps thousands of services and niche products one person can provide profitably. I know this sounds like cheerleading but I also know from experience that it works.

        3. sgt_doom

          Just be sure not to create one of those small, publicly traded companies.

          Please recall that example by the investor a few years back, a Mr. Simpson, who purchased all the outstanding stock in Global Link, then watched as the stock he both physically and legally owned, was traded many millions of time within a 48-hour period, thanks to the DTCC’s Stock Borrow Program, designed for the most naked of naked short selling to destroy small businesses by concentrated hedge fund financial manipulation, which was part of a class action suit against the DTCC (for the naked short selling theft and destruction of an estimated 7,000 small publicly traded companies filed in 2007).

          Later, congress would pass legislation giving small business loan preference to those small business previously invested in by hedge funds and/or private equity funds!

          1. jake chase

            If he purchased “all the outstanding stock”, how did the shorts ever cover? Sounds like he had the perfect corner. What am I missing?

  4. E Bast

    This article hardly seems blind to Yves’ underlying “crappy incomes” cause:

    “Finally, and perhaps most important, younger workers have faced a brutal job market in the last half-decade.”

    Ok. She said “Perhaps.” But beyond that bizarre peculiarity, is it really so bad that the article goes on to blame persistent high rates of unemployment for the young and:

    “Wages, adjusted for inflation, have stagnated for a broad swath of workers for over a decade.”

    True the cures assumed in this article are conventional and backward-looking, but maybe that is due to the report this article is nominally about (at http://www.urban.org/UploadedPDF/412766-Lost-Generations-Wealth-Building-Among-Young-Americans.pdf )

    Unfortunately there’s not a whole lot more data in the original report to quantify the many causes discussed here and in the Times article, but the report is not saying these young are asset-poor for idiotically not following a prudent investment strategy. It is saying they are asset poor compared to the last bunch of idiots who pursued their own idiotic investment strategy (chiefly, sinking it all into a house.)

    You could discuss the historical underperformance of housing versus other investments which I completely concur with Yves and others on, but that’s another article requiring more analysis and hypotheticals whereas this is a more historical comparison.

    And for the real challenge given that historical comparison, if the last bunch of idiots accumulated more wealth by investing in their homes which let’s assume returns a hair over 0% real, and real wages are “stagnant” by which we mean equal, why can’t this generation save as much, even if it means investing in a ZIRP environment?

    1. from Mexico


      “Finally, and perhaps most important, younger workers have faced a brutal job market in the last half-decade.”

      This is one of the biggest lies ever fabricated by the lords of capital and their paid liars and bumscukers.

      Younger workers don’t face “a brutal job market.” They face a brutal government which, since Jimmy Carter, has embarked upon an anti-labor jihad.

      As Christian Parenti explains in Lockdown America:

      Regardless of the exact etiology of the [corporate] profit slump, one thing is for sure, the solution was, as we shall see, to attack labor. Losses by capital, regardless of their origin, can always be recuperated by diminishing labor’s share of output…

      The crisis of the seventies was finally dealt with in 1979 when Carter appointed Paul Volcker as Chairman of the Federal Reserve; it was the opening salvo of a “new class war.” Late in 1979 Volcker dramatically tightened the money supply by boosting interest rates, thus cutting borrowing power and buying power, and diminishing economic activity in general…

      In the eyes of Paul Volcker this was a good thing. For the economic stagnation and low profits of the seventies to be vanquished the American people would have to learn to work harder for less; Reagan’s plan was to cut taxes on the rich, gut welfare, and attack labor. As Volcker told the New York Times: “The standard of living of the average American has to decline… I don’t think you can escape that.”

      In 1981 as the recession was reaching new depths and many in Congress were calling for relief, Volcker again explained the utility of his artificial economic disaster: “in an economy like ours with wages and salaries accounting for two-thirds of all costs, sustaining progress [in price reduction] will need to be reflected in moderation of growth of nominal wages. The general indexes of worker compensation still show relatively little improvement, and prices of many services with high labor content cntinue to show high rates of increase.” The chairman’s goal was labor discipline…

      Before the 1980-82 cold-bath recession, wage freezes and pay cuts in unionized industries had been almost non-existent. Since 1964, and from World War II on, wages had been rising more or less consistently. In 1980 not a single union contract negotiation had ended in a pay freeze or cut. By 1982, 44 percent of new contracts conceded wage freezes or outright cuts. Meanwhile the official unemployment rate, always an under-estimate, reached 10 percent. This was Reagan’s monetarist hammer falling on the middle class expectations of organized labor and, by extension, all workers.

      – CHRISTIAN PARENTI, Lockdown America: Police and Prisons in the Age of Crisis

      1. jake chase

        The Jihad started with Taft Hartley (1947). Big Labor somehow hung on to extortionate gains through the Sixties, but started losing its grip around 1970, just about the time union thugs took to beating on Viet Nam war protestors. I said to myself back then, ‘you fu**ers will get yours soon enough, and you’ll never see it coming.’

        I think what happened was the companies lost the power to pass along wage gains in price increases, as most were blindsided by the quadrupling of oil prices.

        1. Ms G

          I guess you don’t subscribe to the view that the strength of unions was the only thing that ensured sufficiently adequate wages and pensions in the private sector to enable the 30 or so years of American Middle Class Prosperity.

          1. jake chase

            No. The unions did an excellent job of raising wages for their members. They did nothing for non-unionized workers and this, in fact, is why American organized labor ultimately failed.

            Big Bill Haywood (murdered in 1910) insisted that labor’s mission ought to be “One Big Union” involving all workers. I think it was AFL and CIO poobahs who redirected the labor movement for their own purposes, which fit in nicely with Management objectives in the Fifties and early Sixties, since wage gains in the organized sector could be passed along to consumers most of whom had no union protection, and still leave room for juicy profits while manufacturing was mostly done in America.

            Of course, the bosses were one step ahead, also transferring technology overseas as fast as they could, first to Europe and then to Asia when communications and transportation made that possible.

            Unions don’t accomplish anything important unless their goals are political and class oriented.

        2. different clue

          Which unions did those thugs belong to? Can you name the particular unions involved?

          1. jake chase

            I seem to recall they were construction workers erecting the World Trade Center. For some reason, the unions felt their action embodied ‘patriotism’.

            Jefferson was right about that, too.

          2. different clue

            Well, that’s a few people from one local of one union. What explains willful confusion of them with every other member of every other union? Your gleeful spite at unionized worker losses and poverty is clear. Did you have your feelings hurt at one of those protests?

      2. sgt_doom

        Any soul who quotes Christian Parenti, or his great thinking dad, Michael Parenti, is an outstandingly analytical and bright person.

  5. They didn't leave me a choice

    Ahahhahahhahhahhah. This comment section would be comedy gold if it wasn’t so aggravatingly filled with bullshit.

    Look, my generation is never, EVER going to see retirement in the sense that you idiots think. Either peak oil pretty much slaughters the vast majority of us, wiping out institutions and consequently any virtual “savings” we might have or we’ll get nanofactories and money ceases to exist in the sense that we understand it now. Either way, any “savings” we might be doing right now are going to be utterly worthless, little more than vapour.

    Oh, and if you are an even worse idiot who thinks the status quo can continue, then there’s still the fact to contend with that any savings or retirement accounts we might accumulate will just get stolen, one way or another by the 1%.

    So to you obsoletes whining about low savings: go fuck yourselves. Your bullshit is an insult to us. “Home ownership”, “retirement”, “investment”, what a cruel joke.

  6. Conscience of a Conservative

    @ Tiercelet.

    Price of home falls? This is purely conjecture. Nobody knows.

  7. JustThinkin

    I always get a laugh out of folks who talk about all that government spending on social programs without mentioning the elephant in the room – Defense/military/police militarization. If we are so worried about government spending why not slash that spending and use the savings to fund social spending and infrastructure? Look at all the success we’ve had in Afghanistan and Iraq, worth every penny???

    1. cwaltz

      What? That’s crazy talk. We NEED to spend more money than 10 countries combined to secure our safety. Also,too, you’ll make Boeing cry if you cut the money. ;)

    2. sgt_doom

      Ditto!

      That great graph towards the end of David Graeber’s book, Debt: The First 5,000 Years, perfectly demonstrates the one-to-one correlation between “defense” spending and the national debt!

  8. cwaltz

    Amen Yves!

    I have 2 young people in my household and it has been an eye opener what a treadmill we’ve put young people on.

    My oldest originally wanted to teach. After 2 years he’s barely saved enough for 2 years at community college. It’ll take him at least 4 more years to save for a 4 year degree and that would be with him choosing to live at home for those 4 years PLUS the duration of his schooling. He’d be 28 before he left home to remain debt free for a 4 year degree. That’s insane. Particularly when teaching assistants start at $9.50 an hour and that’s what he’ll need to do to get his foot in the door. I keep telling him he’s a masochist.

    1. Lambert Strether

      The good kids are going to specialize in tangibles, like plumbing and gardening. The bad kids are going to specialize in intangibles. Like services:

      Roland had been that entire route and had poured cement for five years before going broke and learning the simple secret of success in business. Deal only in personal services. Not things. No lifting, no heavy work, no overhead, no machinery to speak of. Look good, listen carefully, take a minimum of shit, live close to the Beach and always make yourself available to people who called and said, Roland, there’s this man owes us money. Or, Roland, we believe this man is going independent on us. Or, we believe he’s telling us a story…

      Elmore Leonard, Gold Coast.

      NOTE Well, except for the humanities majors, of course…

    2. different clue

      Going into unrepayable undischargable debt would be MORE insane then go-slowing from home until age 28 and then emerging debt-free. If his heart is set on this schoolteaching thing and he can be a grownup about staying reasonably out of your way while living in a corner of your house, why not let him do that? If your house has a gardenable yard he could even do the heavy work of turning much of it into high intensity gardens and micro-orchards and so forth, increasing his food security and your food security both.

  9. Ziontrain

    If we skip past the emotional drama, there are two two very good reasons that homeowning is important in retirement. Control and stability.

    Stability:
    - Living expenses (mortgage or rental) are a significant percentage of anyone’s income – and that percentage jumps at retirement. Owning your own home means you have a more stable and predictable expense base. You are not at the whim of a landlord’s whim or legal changes resulting in your expenses suddenly skyrocketing. You own your own home and it is paid, then that part of your expenses has a nice lid on it.

    Control:
    - if you own your own home, it means that in your old age you control where you live and what kind of home you live in. Not a trivial matter since its quite common for old people to struggle if forced to move in old age to places where they don’t have family, a support system, transportation suited to them etc.

    So regardless of anecdotal tales or people’s feelings, there are very good logical and financial reason to present homeowning as a virtue and as a foundation element of retirement planning.

    1. cwaltz

      How does that jibe with what we expect from our youth though?

      We expect them to be mobile because jobs are no longer what they once were when you had the expectation that you’d work for one company for 20 to 30 years and then collect a pension. There is little to no security in the job market any longer.

      1. sgt_doom

        ..you’d work for one company for 20 to 30 years and then collect a pension..

        But why even repeat such mythology (which has LONG been such mythology).

        What’s the typical length anyone has worked for a company in America over the past 30 years prior to being laid off and their job offshored?

        And as far as those pensions go, read Ellen Schultz’s incredible book, Retirement Heist — and ignore all books by Barry Lynn, especially that pile of drivel called Cornered where he conveniently ignores the pension fund theft which Blackstone Group got away with (and Peter G. Peterson is one of the major funders of Barry Lynn’s place of employment at the New America Foundation).

    2. Klassy!

      Not sure what you are referring to when you speak of th “emotional drama”.
      Stable? Our property taxes have almost tripled in the years since we bought our house. Maintenance costs are not inconsiderable. We had no increases in our rent in 7 years at the same apt. Landlords are more loathe to increase rent on dependable tenants than you imagine.
      OK, we’re actually in a pretty good position as far as our home goes. We should be paying it off soon enough. You could not rent our house for twice the cost of our house payment. We were lucky enough to buy our house when a good thirty year rate was 7%– home prices were lower and cutting the life of the loan was a no brainer when rates fell. Still, it is hard for me to believe this has been a good investment. There are other reasons to recommend owning for sure but there is nothing “stable” about the costs associated with a house.

    3. MB

      I agree, which is why I own my home and am working on making it energy independent so I know what that cost will be with greater predictability than if I have to buy the energy from someone else. Run the numbers, it’s a good return. But overall, Bernstein makes the arguementthat that from a purely investment stance, you are not ahead investing in a house versus renting. And you must like or have the money to pay to do the upkeep. Not an insignificant part of the program.

      1. cwaltz

        I’m sure you are doing everything you can to prepare for retirement. I’m equally sure that it probably won’t matter.

        The game is rigged. Dollars to donuts if too many people decided to become energy independant they’d come up with a brand new tax to cover the energy industry. The top of the food chain has pretty much decreed that all there is is theirs and it’s just a matter of time before they’ll claim it by hook or crook. It’s probably gonna get worse too since the new government mantra appears to be to privatize everything for a year or two worth of savings and to make the who could have imagined chorus more believable while the top plunders everything.

    4. Moneta

      If your home is well built and does not need to be renovated over the next 20 years.

      Many people I know need to replace everything after 10-15 years thanks to our disposable society.

    5. Mcmike

      The trick to the control/stability method is to buy a modest well made home and pay it down fast.

      1. Klassy!

        Like I said, that’s what we did. Our house is not large. It is 80 years old, so it is well built but not so old that it is one expense after another. We’ve made extra payments– I assume we’ll pay our home after maybe 18 years, considerably shortening the life of the original 30 year mortgage. Let’s see, we also bought pre bubble. Our home has increased in value about 50-70%. We’ve paid cash for all our renovation/remodels. We have not done anything over the top.
        I still do not think this has been a great investment. It still depends on a stable income.

    6. Wat Tyler

      @zion. I am 70 and was forced into early retirement at 56 by GE (best thing that ever happened BTW). I totally agree with your points about the security of home ownership (no mortgage) after retirement. It is hard to describe the peace of mind this brings until you are there.

      Jim

  10. Tyler

    You see that studio? I bought that studio three years ago. My first real estate deal. I’ll sell it eventually, make a $100,000 profit. It’ll be better than sex, but maybe that’s because I’m not doing it right.

  11. Jen W

    Buying a home was a great idea for my husband and me because we had reliable jobs and could expect to stay put. Today, people must chase employment and be ready to move on a dime. Having to go through the troubles of selling a home and buying a new one seems so crazily impractical for most working people.

    1. cwaltz

      We’ve set up a challenging environment for today’s youth.

      The job market wants them to come in already trained. We want them to stay out of debt. So essentially they get to choose. If they go with stay out of debt then the best they can hope for is $10 an hour. If they go with get trained they get the extra income but then they have a $500 a month student loan to pay off AND the kicker is they still may end up with a $10 an hour job anyway.

      Additionally, the days of working hard and being rewarded are long gone. We’re now entering the decade of “temp” and “contract”workers so that business can save on labor costs. If you can find a job it probably won’t last 20 years and you’ll be expected to pick up and relocate to where ever the jobs are. Is it any wonder they aren’t taking out 30 year loans for houses? Who can afford to relocate AND cover the cost of a mortage until you can sell? Not someone making less than $40,000 a year.

      1. Massinissa

        The decade of temps? I think ‘Generation’ or ‘era’ or ‘age’ of temps would make more sense, because this trend, buddy, its here to stay.

        1. McMike

          “Age” as in Middle Ages, as in Serfdom.

          Except the serfs are no longer even offered protection or justice or a subsistence share of the fruits.

  12. It's a great time to buy!

    Cracks me up. The ownership case is being advanced purely with words words words, homely maxims and proverbs, when the question is an application of the Finance 101 lease/buy decision: an empirical question with objective criteria and a standard discounting model. Real estate cargo cultists cannot win this argument with slogans. It takes data and analytical rigor. And on the facts, Yves is irrefutable: residential real estate appreciates at the rate of inflation, if you’re lucky. Housing is a crap investment. If you lever it up to make money, then it’s a potentially ruinous crap investment.

    So why are we hosed down with these bromides every time objective discourse crops up? Home ownership is attractive policy because debt-encumbered workers are more tractable. Home ownership is an early form of debt peonage.

    1. Why are you still paying rent?!!

      True. They fixed it so now everything’s a crap investment. Hedge funds are the sole remaining alternative (hedge funds in the original sense of hedged investments, not in the current sense of anything you can get away with.) And even those are getting to be crowded trades.

  13. Steve Roberts

    Purchasing a home is buying a hedge against increased rent and a forced saving program. It’s not an investment as most people would look at an investment.

    When I took the CFP courses all of the instructors bragged about renting and investing the difference. Maybe that was the reality but in my opinion very few people actually achieve this savings rate versus their intention to do so.

    The problem with home buyers IMO is that they buy too much home under the premise it is an investment. The annual maintenance, insurance and tax bill overwhelms their savings plan.

    1. McMike

      The problem with CFP’s is they reduce everything to monetary, so they live like gypsies in rental condos and file their mutual fund statements in boxes down in the tenant storage cages.

      A home is a home: shelter, hearth, place to raise your kids, place to grow old. The monetary is secondary.

      The cost beyond baseline rent should be considered a lifstyle cost. A hedonic premium of sorts, as with CPI.

      So, the question for homebuyers should be: how much premium am I willing to pay to really enjoy where I live, and have some control over it?

      It’s exactly like buying a nicer car than you need, or buying prime steaks instead of hamburer helper.

      I do agree that the notion that it should be both an investment as well as a lifestyle expense is destined to end badly.

      1. different clue

        That’s how I would look at “buying a home” if I ever feel I am in a position to dare attempt such a thing. “Owning” my own yard/lot with a house on it would let me do gardening/micro-orcharding on it that a landlord might not let me do. I could do super-insulation and energy/water harvesting installations that a landlord might not let me do. I could make the house age-related disability-friendly to get old in. I could install a scientific water-free compostoilet system to help feed the gardens and micro-orchards. Etc.

    2. Ed

      I’m a renter, but I don’t think you can “rent and invest the difference” in an environment where a) all the returns on every investment are bad (due at least in part to ZIRP) and b) stagnant real wages means that you probably won’t have much to invest with after paying the rent anyway.

      However, I think the claims in favor of home ownership are inflated, since the way its usually done in the U.S. it doesn’t get you out of paying rent! Buying a house means liability for mortgage payments in most cases, property taxes in all cases, sometimes condominium fees. A major component of rent is passed along property taxes, so a homeowners’ payments and a renters payments are very similar. And you can be thrown off your property for failure to pay property taxes, or lose it for failure to pay mortgage.

      I really don’t see the difference, except that the homeowner’s monthly payments are somewhat inflated compared to the renter’s monthly payments for cultural reasons (there is a tax deduction, but I assume house prices adjust to take account of that).

  14. McMike

    In my community, young famlies trying to buy their first home are getting blown out of the water in bidding wars with cash-in-hand investors.

    Chalk this up to yet one more example of the Fed punishing the working class, there’t too much hot paper wealth looking to parlay the discount rate arbitrage into rental income and speculative profits, this time anchored in hard assets instead fof paper.

    1. Ms G

      ” … cash-in-hand investors.”

      Exactly the same in New York City. Brokers’ websites now like to keep listings online that say “Sold in All-Cash Sale.” And these are wildly expensive things the size of studios and one bedrooms. All investments. Speculation driving up costs of necessary assets.

      1. jake chase

        It was tough for me to give up Manhattan, but necessary. I left in 1989, made two false starts and ended up in North Carolina. But I would not go back to NY now to get money.

        NYC has become a playground for the international rich served by rent gouged serfs forced to commute from Queens. Can anything be worse than going home on the subway? What can you do there, work in advertising, television, finance, law?

        Probably, the best jobs fall to personal chefs, and guys who walk twelve dogs at a time and move cars from one side of the street to the other.

        1. Ms G

          And butlers. There is a booming business in the service sector for butlers. The British ones are in especially high demand. True story. Can’t find the link — it was in the local news @ 2 years ago. Maybe in NY Magazine, even, or the rag known as The NY-er.

        2. Ed

          I hope Yves does a thread on this someday. I’m from New York, currently on a temporary job outside New York, but I’ve gotten the impression that not only is the emergence of New York (meaning most of Manhattan and parts of Brooklyn) as the detination of choice for the international wealthy are not only pricing out ordinary people in terms of apartments, but is also starting to price out businesses that don’t cater to that class. Though apparently the employment numbers are going up, its getting hard to find work in New York in “normal” career fields. If this is genuine and it continues for another three years there is going to be a big, and not good, impact on the whole ambiance of the city.

  15. briansays

    as a retiree i also suspect that far fewer jobs today come with the added benefit of an employee match up to a certain percentage of an employee sponsored 401k

    1. different clue

      Not that a 401k was ever anything but a loss-making swindle to the employee anyway.

  16. sierra7

    “Strong and sustained job and wage growth would cure many of the ills facing younger workers, experts said. But their delayed or diminished wealth accumulation might still have a lasting impact on their finances.”

    Ah, some of my favorite words!
    “….would….”, “…..might….”!

    My term of “conditional phraseology” without which no article in the NYT (or almost any other major media conveyance)can be written….

    Other words that I include are:
    Could
    Should
    Maybe
    Otherwise etc….I’m sure you get the picture.

    When these words are used it gives the author an “out” and they can write, print anything they want…..It’s up to the readers to carve out these words and the “context” they are written an then come to the inevitable conclusion that the article has many purposeful “holes” that allow the writers and publishers to get away with intellectual crimes.

    Beware!

  17. rob

    The times article is written by someone who just doesn’t get it.So what else is new?

    The first distinction is about quality of life.Owning a home, can be a source of great joy;for some.Everyone needs a hobby,right.It also could be a money pit that never pays off and makes you crazy.These are personal choices, and anecdotal.Personally, I love my House.Built it myself.

    But, talking about a generation”not earning like they should”….well.. NO SH#T.
    It has been A DECADE since we invaded IRAQ.More since 9-11.
    The world has been steadily turning to sh#t since 9-11.After the tech bubble burst..it has been a power grab by the corporate elite, the world over.Wages going down, costs of every sort going up.EVERY “old norm”, out the window.This is a new world.Those born these days may just end up living out their old age “squatting” and scavenging.

    Someone who is twenty two years old today, knows nothing but propaganda.Pro-state,rabid fascists.pro-corporate…
    but the reality is, their degree is required.so sign here.You’ll owe.You may or may not make enough to live… but sign here…. we have collections agencies and special provisions so these debts will never be forgiven…
    The work ethic of yester-year.. just doesn’t pay anymore.The examples of people I knew as a child, many, many business owners, all had this thing about living modestly,working hard, saving, and being good at what they did… and taking reasonable risks. these things worked out for them.Today, Most people who work hard, don’t get paid very well.The economy sucks, so being in business for yourself is spotty at best.While , a lot of people who are just cogs in corporate machines are over compensated, and have no seeming accountability, except knowing that someday they will be outsourced too.
    Today, People are trying to stay busy.Keeping up with the bills.Young people who don’t benefit from nepotism, are really screwed.ANd they haven’t a clue. they are living in a world where this is all they know.From a sociological point of view, this generation doesn’t have anything to lose.Maybe when the older generation dies. People will have a better chance at changing the status quo.

    1. cwaltz

      Most of what you say is right.

      However, I know at least some of them realize that this is a rigged game.

      It’s hard for the kids trying to make the right choices to not give in to the peer pressure, toss up their hands and not go with the flow. After all,if you’re going to be screwed might as well have some fun while it happens. It sucks to know a guy who made 21 million dollars in one year who owns 5 homes paid 1% more of his income than you, a kid,living at home, working 40+ hours, walking to work so you can save some money for college( and not an IVY league school but a state college.)

      We’re a pretty screwed up society and our children are more aware of it then you think.

      1. harry

        Glad to hear it. Shame they are on average sufficiently feeble that they will stand still while they are economically abused. You would think they would do a better job of scaring the elites. Instead the credulous fools turned out in their thousands for Barky and helped get him elected – twice. You get the government you deserve … Peace bros, hope and change. I hope they enjoy being able to be health insured by mom and dad till 26.

  18. sierra7

    As always I love reading Yves’s writing…and also enjoy the commenters on this blog…

    Common sense should tell everyone that in a global economy, a “…world level playing field” of wages is the ONLY outcome.
    So go figger (sic)….the downward push for that world level playing field of wages is the only final outcome, short of a violent world revolution against “capitalism” per se.

    “We” (not everyone) revere the bright, the flashy, the favorite perssonalities, the incredible lifestyles of the rich and famous…..and we ignore the otherwise more mundane of society.

    For society (gross) to survive it must realize and follow thru with non-violent forms of revolt againse the prevailing economic tyranny by replacing those short term, disposable theories with long term and sustainable policies.
    Until we do that we will fail utterly to achieve an alternative sustainable economy.
    And, we must find a way to subordinate any future economic policies to the needs of a progressive society that need not depend on “lifestyles” but, “qualities of life”.

    Our nation in particular is not trying to achieve long term, sustainable economies, but is attempting to crush the rest of the world by extortion, continuous backing of brutal dictatorships, almost outright stealing of other nations’ natural resources…..and, in those “foreign” policies, pursue a downward spiral of our nations’ citizens’ “Bill of Rights” rights.

    Our young will face some very hard choices just like our and past generations. They will survive even by making horrible choices…..until somewhre in the future those generations will face the ultimate facts:
    We live finite lives.
    We live on a planet with a finite life term.
    We depend totally on the environment of that (this) planet.
    How do we preserve that sustainable environment?
    That period will occur, just as in the future economies, when inevitable disaster(s) occur……
    Hopefully those future generations will come up with better solutions than we have.

  19. ScottS

    I never believe anything regarding real estate in a newspaper. Look at the real estate classifieds section and guess who pays the bills at newspapers.

  20. Toronto Mark

    I am a 24 year old political science major living at home in a working class family household.

    What/where can I read about being a young person in a differing landscape than our parents’ i.e. writings on new thinking-paradigms for the newly graduated youth, not geared toward leading a complacent family+homeownership life?

    1. joel3000

      Chomsky is a good place to start. Start with the current books as they are most relevant.

      Chomsky reminds us of Hume’s observation that government can only occur by the consent of the governed.

  21. Kokuanani

    I’m wondering when we’ll see some articles in the NYT [or elsewhere] about the futility of relying on that 401(k), and the consequent need to increase social security benefits.

    Do the math: even if you were lucky enough to sock away $1 million, at the 1% the banks are paying, that would get you $10K per year. Think you can live on that, even when added to your social security benefits?

    Contrast that meager return with the level of benefits we could pay if we raised the cap on income required to contribute to social security. Say what you will about “social security won’t be there for me,” it’s there now, it will be there for the future, and it could be there forever if we’d fund it right.

    How can the other “developed countries” provide retirement income for their citizens, but the good ole’ US of A can’t?

    1. Ms G

      Nobody so far has had the guts to come out and say that 401(k)s were a Giant Con successfully executed through toxic products like mutual funds and ETFs, at the expense of wage earners in the last 30 years. Or retail investing in equities and bond markets.

      I don’t know how anybody calling themselves a “financial advisor” or “financial planner” who advises people to put money in any “financial product” other than a cash savings account (and charge fees for the service) can look at him or herself in the mirror.

    2. jrs

      It will pay 10k a year if you never touch principle, which is not a reasonable retirement plan. If you burn down principle even say 30 years that’s 33k a year, even over 40 years it’s 25k a year, that and whatever you get from SS. It’s probably enough. Of course who can accumulate a million anyway? But I’m not sure it’s worth shedding a tear for those who accumulated a million, poor heirs won’t get anything, world’s smallest violin and all, the argument for the safety net is they get some benefit sure, but the real argument are those which much less need the safety net.

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  23. Hugo Stiglitz

    Phasing out tax credits for home mortgage would be a blow to realtors, developers, lenders and much of the industry associated with them, but it would be beneficial in the long run. Of course, it would be nearly impossible to overcome the opposition given the glaring leadership void in US political institutions. The GOP in particular would go ballistic as suburban sprawl and it incredibly shortsighted living arrangement has been a very important aspect of their rise to power. I do not see home ownership as some sort of god given right, and I do not think the government should subsidize it. Fully privatize Freddie and Fanny, drop mortgage payment tax credits and allow markets to sort out who can afford to buy a house.
    Of course it’s Never. Gonna. Happen.
    Pity.

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