Guest post by Brendan Wright
I just found another scintillating read– the Bureau of Labor Statistics’ Consumer Expenditures 2019. There’s some very interesting take-aways. In fact, I’d go so far as to say that think I understand why many well-meaning baby boomers think (wrongly) that young people could afford homes if we just cut back on luxuries a little bit. It’s become a bit of a trope that your boomer relatives think that you could own a home if you just cut back on the avocado toast and Lulu Lemon pants. Aunt Linda probably thinks that way because she and Uncle Frank made similar sacrifices, and it landed them in a nice split-level ranch!
Food expenses– both dining and at home– take up 15.46% of contemporary household income. Let’s call it 15.5% to make things easy. Apparel and Services take up about 2% of household income. Healthcare takes up yet another 6% of our income. The median price of a new home in 2019 was $320,700, according to money-zine.com— Approximately 3.9 times the annual household income reported by the Bureau of Labor statistics.
I busted out another thriller– “A Century of Family Budgets in the United States”, also by those raconteurs at the Bureau of Labor Statistics. Table 4, “Historical Shares of Family Consumption” shows some interesting data for 1966– when Aunt Linda and Uncle and Uncle Frank were bright-eyed young things hoping to buy their first home. It lacks certain categories that the contemporary budgets have– like personal care. It appears to be a suggested budget, rather than what people were doing in the wild, but it’s based on actual income and expense data available to the BLS at the time. The BLS thinks that Uncle Frank and and Linda were spending 29.2% of their income on food, 10.3% on Clothing, and 6.4% on Healthcare. More importantly, the average household income in 1966 was $7400 (per Census.gov) and the average cost of a home was $14,200 (Doyouremember.com). That’s only 1.9 times average household income in their day.
If Aunt Linda and Uncle Frank were saving for 10% down on a home, they’d only have to save an amount equivalent to 19% of their annual income. If they managed to temporarily reduce the household food and clothing budgets by half– let’s say by thrift shopping, sewing their own, and eating less expensive foods– then they could free up 19.75% of their annual budget. In about a year of thrift, they could be walking into the bank and asking for a mortgage in one of America’s new suburban developments.
If a millennial wants to buy an average house right now with 10% down, they’re looking at saving about 39% of their annual income. (I didn’t factor closing costs into this, since I couldn’t find historical average closing cost estimates– but they aren’t cheap.) A frugal millennial who manages to spend half of the normal amount on food and the apparel/services category can expect to save up 8.75% of their annual income over the course of the year. In other words– they’re having to save about 4.5 times as long as Uncle Frank and Aunt Linda did. Emergencies can easily wipe out down payment savings before a would-be home buyer can use them to stabilize their housing situation. If your landlord decides to suddenly jack up your rent– common in many major cities these days– you might have to dip into those funds to pay for a deposit and moving van. Four and a half years is a much longer time to have to go without an incident.
I focused on food and clothing expenses because they’re usually the easiest for people to control. Costs decreasing in those areas mean that there’s less wiggle-room in millennial budgets. The big expenses tend to be harder to control– like housing or healthcare. Nobody asks their ambulance driver which hospital has the best prices on emergency appendectomies– they just care about getting to a place that can save their life. Housing is the big one for many young people, and there just aren’t a lot of good options in many areas. Many millennials dream of minimalist options like van life, but there are barriers– financial, social, legal, and otherwise– to get into tiny homes, van living, houseboats and many other off-beat alternatives. They’re not impossible, but they also aren’t easy and still have considerable costs.
Bottom line: Aunt Linda and Uncle Frank were playing on easy mode back in 1966.