Financial newsletter writer Ted Bauman takes an economist’s view on conservative investing and other matters of a financial nature. One thing he has been following is the cost of housing in the United States. The value of the average house has shot up by almost 50 percent since the housing market bottomed out in 2012. Meanwhile, the average family’s income has barely gone up 3 percent. Housing is becoming increasingly unaffordable for a large swath of Americans, especially millennials.
The latest First-Time Homebuyer Affordability Report, annually issued by the National Association of Realtors, shows that homes are getting less affordable. If their report shows a value of 100 that means that the typical family can afford the average home value in the United Staes. Numbers on this index above 100 shows more affordability while numbers below it show less. This number was 103.9 during 2018’s first quarter and dropped to 92.5 in the second quarter, showing a dramatic decline in home affordability.
The price of starter homes is also up quite a bit, Ted Bauman reports. In 2017 this home would have cost $197,400 while in 2018 a starter home now costs $228,700. Because of this first-time homebuyers can’t afford a home and need to rent instead. And, indeed, housing rental vacancies are seeing their lowest numbers in the past 25 years.
This is all good news for investors who buy REITs, though, or Real Estate Investment Trusts. These are mutual funds or ETFs that strictly invest in commercial real estate, which is also going up in value. They offer dividend income and the possibility of capital appreciation. These are considered an alternative to the traditional investments of stocks and bonds.
Ted Bauman was trained as an economist at South Africa’s Cape Town University. He worked as a fund manager in the nonprofit industry for a quarter century there before moving back to the United States and settling with his family in Atlanta, Georgia. He now writes three newsletters for Banyan Hill Publishing. The topics Ted Bauman covers are investing in a conservative manner, the economy, immigration, and protecting one’s privacy from big corporations and government.