Swing for the fences (white picket ones)

If you’re a millennial or Gen Z facing the affordability crisis in America, this blog might resonate with you.

You may be less thrilled about my solutions, though.

I’m among the few of my peers without a TikTok, but my wife showed me an intriguing video recently. It dissected the new socioeconomic hierarchy within the American middle class, attributing the widening gap between the lower and upper middle class to the timing of their first home purchases.

If you bought a home in 2020 or earlier, your situation is markedly different from those who bought (or didn’t buy) afterward. In 2020, the average home price in America was about $330k. Fast forward to Q3 2023, and that price has jumped to over $430k. Meanwhile, average interest rates have skyrocketed from around 3% (30-year fixed) to over 7%.

With a 20% down payment (not as easy as it sounds) and a 30-year fixed mortgage, your principal and interest (P&I) payment alone would have risen from roughly $1,200 to $2,300 monthly. “Where can I find a comfortable home for less than $3k monthly, even with a 20% down payment?” you might ask.

The answer isn’t simple.

While these are national averages, they don’t fit everyone’s situation, especially for those raising young families. According to the U.S. Census Bureau, the nominal median U.S. family income in 2020 was $69,560. By the end of 2022, it had increased to $77,174 – a 10.95% rise over two years. However, while nominal household incomes rose about 11%, housing prices soared over 33%, and interest rates more than doubled.

This resulted in monthly shelter costs doubling or more. For the median household with an after-tax income of roughly $63,000, housing costs significantly impact their budget:

• At $2,000 monthly for housing, there’s $39,000 left for other expenses.

• At $3,000 monthly, it’s $27,000.

• And at $4,000, it’s just $15,000.

Consider these stats:

• The USDA’s Thrifty Food Plan estimates annual groceries for a family of four in 2023 at just under $12,000.

• Childcare Aware of America suggests that average childcare costs range from $10,000 to $12,000 per child annually.

• Bankrate reports average monthly car payments of $729 for new cars and $528 for used ones.

These figures quickly become daunting. And this doesn’t even cover other essentials like clothing and gas.

For those without children, consider this: attending a wedding can cost at least $600 per person.

The affordability crisis isn’t your fault.

Many who didn’t purchase a home during the global pandemic’s uncertainty are now facing these consequences.

But the home is just the core issue; the surrounding costs compound the problem.

Now for the unpopular part: “Life isn’t fair,” as our parents often said.

Unfortunately, you’re experiencing this in your 20s/30s. But remember, others have faced similar challenges, and more will in the future.

This is a time for massive action. We need to rethink traditional notions of work, income, and retirement.

The era of working 40 hours a week, receiving annual 5% raises, and retiring at 60 with a pension and Social Security is over.

We’re in the “home run generation,” where playing it safe isn’t enough for success or even survival.

With technology and automation, we have the tools to build a prosperous future. The upcoming transition of trillions of dollars from legacy boomer-run businesses presents an opportunity for innovation and wealth acquisition.

The internet offers an equalizing platform for innovation, leveling the playing field to an extent. So, how will today’s actions impact your future?

Unlike other millennial Certified Financial Planners (CFPs) who advocate living below your means and playing a risk-reward game, I argue that such strategies are insufficient. Many are struggling to maintain a basic standard of living, let alone invest.

Invest in yourself. Take drastic action. Own equity in some form. Yes, times are tough. But they only get better when we take decisive, bold action. Swing for the fences.