Quick, call all your Venmo debts in and start planning on the short-term capital gains tax you’re going to pay on your Bitcoins when you follow my line of reasoning below.
In case you were too busy honing your craft and failed to notice, The Fed, AKA some government folks in Washington who tinker with some financial levers and steer one of the largest economic forces on planet, said something yesterday that affects you.
Excerpt from the New York Times, 19th-Sept
“The Fed is expected to announce on Wednesday that it will gradually reduce its $4.2 trillion portfolio of United States Treasury debt and mortgage-backed securities, a move that would amount to a vote of confidence that the economy’s slow-but-steady growth is likely to continue.”
Wednesday the 20th, they (The Fed) did.
That’s the unwinding of the mortgage crisis’ “Quantitative Easing” and the same Times article described it well with, “The Fed responded to the crisis that began a decade ago by cutting its benchmark interest rate nearly to zero, and by vacuuming up huge quantities of bonds. Both measures were designed to revive economic activity by reducing borrowing costs for everything from mortgages to car loans.”
Fancy economics, you impressed yet? Do you know what that means to you?
It means this: The generation with lowest proportion of homeownership since the 1960’s are going to stay renters, Millennials.
Speaking statistically, the oldest of us, those born in ‘80/’81 are joining the upper echelons at organizations, having kids and… moving to the ‘burbs, or what city planners call “Urban Edge”. I’m not saying we aren’t doing it in our own way, but I am saying there is a general fit with patterns established by a few generations before us. That being said, the issue is this, we have struggled, financially. Earning our stripes by graduating into one of the worst cycles of recession since the Great Depression and destined to earn less over our lifetime than those that graduated into the dot.com boom or the last few years of goodness.
It was estimated by The Fed that their efforts of Quantitative Easing during the mortgage crisis, not only saved the economy (by many accounts it did), but also kept interest rates artificially low by 1%, according to The Fed’s 4/202016 analysis. Here’s what that means to you. It means that housing prices rose because mortgages were cheap, you couldn’t buy because you weren’t making good money yet and now interest rate are going to rise.
E.x. -
Avg Price of Single-Family home in Denver, CO = $434,478 (Denver Business Journal - 9/7/2017)
Total cost of 30yr fixed mtg with 20% down, @4% interest = $1,660/mo with a total cost of the mtg $597,759
Internalizing just the +1% The Fed estimates, changes it to $1,867/mo with the total cost rising to $672,140.
Conclusion: That’s more than $200/mo and $75k total more than present day, with a 1% rate increase.
Are you getting a raise this year? You better, especially to cover what the mortgage industry calls your DTI or Debt to Income Ratio. That $200/mo payment increase means you need to make more than $400/mo in additional income to cover the same house, we’ve got side-gigs though and it isn’t like we weren’t already paying that to our astronomical student loan debt.
So, back to my statement that kicked this whole argument off, and it is going to sound entitled, but non-millennials bare with me, interest rates rising because people are working hard and spending hard, is a joke. A joke that shouldn’t be funny to Millennials. We comprise of just over 50% of current workforce and, despite being maligned as entitled and delicate snowflakes, we are the primary resource feeding this economy.
My call to my fellow Millennials isn’t to sit back and be fleeced, it is to do what we do well, disrupt.
Open your eyes to what’s happening, research the parts at play, get creative about resources and change the game. Sure The Fed’s actions are going to raise interest rates, and sure, we want to balance full employment with reasonable inflation, but the composition of those that are going to profit from this ecosystem do not have to be the traditional players.
Go solve housing affordability issues, fix student loan debt, arbitrage interest rates such that big banks and insurers don’t take all the profit, think deeply about our data privacy, be positive stewards of our planet and be courageously compassionate to the narrative of our neighbors. There are many causes to tackle, so it is good that we are many
Together, it can be done.