EP239: The Collapse of Homeownership

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Have you noticed a theme among homeownership? Well, if you’re being honest, it’s that it seems more unattainable than ever. The U.S. is right in the middle of the biggest housing affordability mess ever. And you know what? It’s only getting worse. 

You might think it’s just a Monopoly game for the rich, with millionaires buying up houses left and right to make themselves even richer, while the rest of us get left behind, but if you stick with us today, you’re going to find out that it’s actually not quite that simple. 

In today’s episode, we’re going to tackle some pretty big questions. 

Things like, how did we get here? Who is MOST affected by this homeownership crisis? And what can you do to turn this reality around in your favor?

Do you guys ever remember reading as a kid the series Little House on the Prairie? It was set in the Midwest, and it told the story of a pioneer family who faced many challenges with love, determination, and courage. 

And they did it all within their humble little home which housed their dreams for the future as well as their unshakable bond. But what really stands out to us is how these humble pioneers, despite their modest means, achieved something that many still strive for today – simply owning a home.

This is actually pretty sad, if you think about it. While it might not be as simple for you and me as building a house on a prairie, it shouldn’t be something that only the Elon Musk’s of the world can afford. You guys, we hate to break it to you, but things are looking pretty darn bleak. Think we are overreacting? Let’s look at some numbers to figure out just how bad it is.

There’s a lot of research out there to support this, but in America today, the dream of owning a home is becoming increasingly out of reach. In fact, research shows that the cost of a median-priced house now stands at somewhere around six times the median income.

You might not think this sounds that bad until you think about the fact that an average American household aiming to purchase a home at the median price would need to earn at least $100,000 annually. 

In many metropolitan areas like the one we live in, this figure skyrockets to nearly three to four times that amount, placing homeownership even further out of reach.

But what’s really concerning and pretty unfair is that the median household income across the country actually falls pretty significantly below this $100,000 mark. 

To better understand the dynamics at play and to visually track the evolving relationship between median incomes and housing prices over the years, we want to show you this very concerning graph sourced from the Federal Reserve so that you can see for yourself just how bad the income-housing gap really is.

But how did this happen? And how did we get here as a country? Well, like anything, it certainly didn’t happen overnight. Back in 1984, the average household income was somewhere around $22,420, and the median price for a house was about $78,200. 

When you do some pretty basic math,  this means that the price-to-income ratio was around 3.49. In layman’s terms, it actually meant something pretty awesome: back then, owning a home was a lot more doable.

Let’s talk about why and jump back to the late ’70s and early ’80s.

This period was a time of incredible inflation and soaring interest rates, with the 30-year fixed mortgage rate peaking close to 14% in 1984. You think rates are bad now – those super high rates posed a significant barrier to affordability, making homeownership seem totally unattainable for many.

Fast forward to the 2000s, and home prices skyrocketed thanks to a housing bubble that completely burst in 2008, triggering a severe recession. The widespread use of subprime mortgages was a key factor in the crisis, revealing weaknesses in the financial system.

Sooooooo in response to the recession, the Federal Reserve implemented a series of measures aimed at stimulating economic growth, including slashing interest rates to all-time historic lows. 

While this move was intended to boost the housing market and grant easy access to homeownership, it accidentally did the opposite by causing a rise in housing prices. What a nightmare!

As you can see, there’s quite the balance going on between economic factors like inflation and interest rates, mixed with moves made by the Federal Reserve. And all of this is shaping how the housing market develops over the years and how it got us to where we are today. 

Which brings us to the basic economic concept of supply and demand.

But as it relates to us and the housing market, what’s happening is that we’ve got a whole new generation entering the housing market, but there’s just not enough new construction to go around. To make matters worse, investors are scooping up homes and turning them into rentals, making the supply even tighter, which is in turn driving prices through the roof.

The bleak reality that we don’t want to sugar coat for you is that in 2023, the price of entry into homeownership was sky-high. Not much if anything has changed in 2024; if you want to own a median-priced home, you better be pulling in at least $100,000 a year ++ depending on your zip code—which is a lot more than what most households are making.

As we mentioned earlier, in some urban places, you have to be earning three to four times the median income just to afford a place to live.  But let’s zoom out and look at the bigger picture here. As you might imagine, when housing costs soar, families are forced to reallocate their budgets, often cutting back on essential expenses like groceries and healthcare. This reduction in consumer spending can have ripple effects throughout the economy.

Not only that, but the unaffordability of housing can also hinder job mobility. When individuals are unable to relocate for employment opportunities due to high housing costs, it contributes to labor shortages in cities with super high living expenses. 

This creates challenges for businesses looking to recruit and retain talent, which also impacts economic productivity.

Listen, when we first started in multifamily apartment syndication, we had no idea what we were doing. We had just lost everything we knew and loved in the fashion industry, and we really had no backup plan. We absolutely don’t want this to be your story too, which is why we are so happy that you’re here today!

If you want an exit strategy from the stress and chaos of today’s real estate industry, we would love to introduce you to a game-changing alternative: apartment syndications. So, what exactly are apartment syndications?

Think of them as a team effort in the world of investing. Instead of having to deal with all the stress yourself, investors pool their resources to buy and have experts manage properties. You’re basically bringing all your buddies together to tackle a big project. 

This is in total contrast to traditional homeownership. When you buy a home the old-fashioned way, a big chunk of your money gets tied up in equity. And accessing that equity isn’t exactly easy between closing costs, refinancing headaches, and all sorts of paperwork and other hoops to jump through.

Thankfully, with apartment syndications, your capital isn’t locked up in bricks and mortar. Instead, you’re part of a dynamic team investing in properties that have the potential to generate solid returns. Plus, you get to diversify your investment portfolio without the hassle of managing properties solo.

So, if you’re looking to leverage the new reality of real estate investing, syndications might just be your ticket to financial success so that you can make your money work smarter, not harder.

When you think about it, there’s actually a lot of advantages to investing in apartment syndications. 

First, syndications provide a pathway into the real estate market without the typical barriers of high initial capital or the complexities of securing a mortgage. This accessibility allows investors to participate in lucrative real estate opportunities without being weighed down by financial constraints. Total win-win.

On top of that, by investing in apartment syndications, you can enjoy a steady stream of passive income generated from rental properties. 

As property values naturally increase over time due to inflation, investors stand to benefit from equity appreciation, which enhances the value of their investment portfolio even more.

In addition to the other benefits, apartment syndications also offer solutions for bridging the affordability gap. The simple act of pooling resources allows you to combine financial resources to access income-producing assets that may have been out of reach on your own. 

You can also spread risk across multiple properties or projects. Unlike traditional homeownership, where all capital is tied to a single asset, syndicate members can diversify their investment portfolio. This diversification helps mitigate risk, as any setbacks in one investment can be offset by the performance of others within the syndicate.

Investing in tangible real estate assets through apartment syndications can also be a smart move when it comes to protecting your investment against inflation.

Unlike paper assets that can lose value when prices rise, real estate tends to hold its value—and even appreciate—over time. So, by investing your money in apartment syndications, you’re essentially building a shield against the effects of inflation, helping to preserve and potentially grow your wealth in the long run.

Not only that, but you also get control and flexibility. And who doesn’t love being in control? 

Unlike traditional homeownership, syndications offer you the flexibility to choose the level of investment that suits your financial goals and risk tolerance. Plus, you get to hand-pick the specific projects you want to invest in. 

You get to have the power to customize your investment portfolio to fit your needs and preferences, without all the headaches of managing properties solo.

So, if you’re looking to increase your investment portfolio and also protect yourself against inflation, syndications might be the perfect fit. We feel confident that this winning combination of stability and flexibility can help you achieve your financial goals. So what are you waiting for?

Now that you’re all excited about all the goodness apartment syndications offer, watch this video on on how to assemble your superstar team.

According to the Burns Home Builder Survey, builders across the country are projecting double-digit growth, with plans to expand community offerings by 11% by the end of the year.

While some regions experienced a recent slowdown from quick sell-outs, areas like Florida and the Southeast are expecting the highest growth, aiming for a 17% increase in community counts in 2024.