- High home prices and interest rates have created many challenges for young Americans.
- But the boomer generation has fewer reasons to complain.
Buying a home in the US is less affordable than it's been in decades, but many older Americans are benefiting from the economic environment.
According to the National Association of Realtors, US mortgage affordability is at the lowest level since at least 1989. As of June, the median American had to spend over 43% of their income to meet a mortgage payment on the typical US home, according to the Atlanta Fed, the third-highest monthly figure since 2006.
These trends have been driven by the combination of high home prices and interest rates. This month, the median US monthly mortgage payment hit a record high of over $2,600. In the second quarter of this year, over half of the US housing market saw record price increases. At the same time, the 30-year fixed mortgage rate is near a two-decade high, in part due to the Federal Reserve's campaign to raise interest rates and cool inflation.
If you're a young, aspiring first-time homebuyer, these developments may sound dismal. But if you're a member of the baby-boom generation, the youngest members being about 60 years old, there's a good chance you have fewer complaints about high home prices and interest rates.
Of course, many older Americans are also struggling in today's economy, but high prices and rates are generally more advantageous to them than to younger generations. Insider breaks down the reasons below.
Rising home prices increase the wealth of existing homeowners
For the roughly 70% of US 18- to 29-year-olds who didn't own a home as of 2021, per the Federal Reserve, high prices might've made homeownership feel unattainable. First-time buyers accounted for just 26% of US home purchases last year, according to the National Association of Realtors, the lowest share since data collection began in 1981. By pushing up the number of renters, high home prices help keep young Americans' rent prices high.
For many older Americans, however, high home prices have been a boon to their finances.
As of 2021, 84% of Americans ages 60 and older owned their home. The rise in housing prices over the past few decades — and especially the past few years — has helped boomers accumulate more real-estate wealth than any other generation, a New York Time analysis of Fed data found.
As of the first quarter of this year, boomers held about 53% of total US household wealth, the Fed said. While many Gen Xers and millennials have bought homes over the past decade, they held only 28% and 6%, respectively — partly because they haven't had as much time to see their home values grow.
Rising interest rates affect you less if you've already been locked in a loan payment
Boomers historically faced significant housing-affordability challenges of their own, but many were able to refinance at lower rates over the years. And with their fixed mortgage rates now locked in, the recent spike isn't a problem for those still paying off their mortgages.
For young Americans, there's not a whole lot to like about high interest rates.
Elevated rates not only contribute to the high mortgage rates that have helped make homeownership so expensive but also make credit-card debt all the more costly. Americans could pay an extra $45 billion in credit-card interest this year because of the increase in rates alone.
Students who took out federal student loans this fall were strapped with the highest interest rates in at least a decade. Those with variable-rate student loans from private lenders could see their borrowing costs rise as well.
Meanwhile, the average monthly car payment in the US reached a record high of $733 in the second quarter of this year, driven in part by elevated interest rates.
Older Americans aren't immune to credit-card debt, but few are taking out student loans at this point in their lives. While some are purchasing new vehicles, many locked in a lower car payment years ago.
High interest rates boost low-risk investments for retired boomers
One of the most common pieces of investing advice for older Americans and retirees is to shift at least some savings away from lucrative but risky investments in the volatile stock market into more-stable but typically lower-yielding bonds.
Generally, investors are forced to accept a much lower return in exchange for bonds' lower risk, but in today's high-interest environment, many boomers have been able to have something close to the best of both worlds.
On Wednesday, yields on US government Treasury bonds reached the highest level since 2007. The rate of 10-year Treasurys was about 4.36%, up from a low of 0.32% in early 2020.
For younger investors eager to ride the stock-market roller coaster and grow their wealth over time, bonds are less attractive. Elevated interest rates, however, are weighing on the stock market because high Treasury bond yields have made investors less likely to dump money into stocks.
In the near term, US home prices are likely to continue frustrating young Americans and boosting the net worths of many boomers. High interest rates, meanwhile, are expected to persist, though experts say the Fed could begin cutting rates next year.