[00:00:00] This is Sales Globe Signals and I'm mark Danolo.
[00:00:05] A 50 year mortgage is the next generation going to live life as a service?
[00:00:11] In Sales Globe Signals, we ask two questions. What are the market signals and what does this mean for profitable revenue growth?
[00:00:20] Here's what you need to know.
[00:00:22] Home prices have far outpaced income growth for 40 years and and homeownership has become interest rate dependent. The first time buyer is now a 40 year old, compressing the years available to build equity. A 50 year mortgage doesn't fix the economics, it nearly doubles. Total interest supply is tightened to a multi decade low while the number of homes for sale has collapsed relative to population growth.
[00:00:48] Cheaper to rent than buy is a life as a service myth that endangers wealth creation and opportunities abound to help home buyers improve their positions and help your B2B customers. In turn, the dynamic of the housing market has shifted which may create opportunities for you to help your customers.
[00:01:07] What are the market signals? Homeownership has been the American dream for nearly 100 years at least, going back to when mortgages as we know them came into existence. And for much of the world, homeownership is also their aspiration.
[00:01:20] But a series of factors, or signals as we call them, have come together to bring that dream to a rude awakening that could leave the next generation paying on the monthly meter rather than reaching financial independence.
[00:01:32] Signal 1 the 50 year mortgage is not a Panacea for homeownership affordability the 50 year mortgage has moved from fringe idea to policy conversation.
[00:01:44] Earlier this month, FHFA director Bill Pulte publicly floated the idea of a 50 year mortgage, which has reportedly been discussed with the administrative is one tool to address the housing affordability challenge for much of the country.
[00:01:57] The idea is that by extending the loan term, the resulting lower monthly payment would give new buyers a path to ownership. For example, on a median home of about $425,000, a traditional 30 year mortgage at 6% interest has a monthly principal and interest payment of about $2,420.
[00:02:16] What does this mean with a 50 year mortgage on the same loan, that monthly payment drops to about $2,125. It sounds more attractive if you think of your life and monthly payments like your car lease. But for that $300 benefit, the homeowner would pay almost double the amount of total interest over the life of the loan to bring that into dollar terms. In the example, total interest over the life of the loan for a 30 year mortgage adds up to $492,312 compared to total interest on a 50 year mortgage of $917,330. That's a difference of over $425,000.
[00:02:55] The buyer could have purchased a second home of the same value with the extra interest. And with a first time home buyer now 40 years old, their mortgage burning party would have to be delayed until they reached age 90.
[00:03:07] Since the average US life expectancy is about 79, the majority of 50 year mortgage holders would likely die in debt, never enjoying being free from monthly payments.
[00:03:18] Does the 50 year mortgage solve the monthly payment problem better than a reduction in mortgage rates? The answer is no if a lower monthly payment is the goal. To get to that monthly payment of $2,237, the mortgage rate would need to drop from 6% to about 4.8%. We were just there in 2021, so locking in the new homeowner to an additional 20 year mortgage sentence when rates could reasonably be back in that range within the next few years seems ludicrous.
[00:03:46] The borrower functions as a long term tenant of the bank, paying a monthly fee for the service of shelter, but retaining responsibility for maintenance, taxes and insurance.
[00:03:56] It's up to the people who know these numbers to make the risk clear to the generation of would be 50 year mortgage victims.
[00:04:02] Signal 2 First time home buyers are showing up late to the mortgage burning party. I referenced the increasing age of the first time home buyer, so let's take a brief look.
[00:04:13] The increasing age of the first time home buyer is where life as a service risk starts to creep in. From 1980 to 2025, the median age of the first time homebuyer has increased from 29 to 40. That in itself appears to be a big jump of about 38%. But breaking it apart, there's a dramatic change around 2020. Between 1980 and 2020, first time home buyer age increased an average of 0.32% annually. But from 2020 to to 2025, first time homebuyer age leapt an average of 3.92% annually.
[00:04:48] This second trajectory around 2020 appears to be where median age became unhinged, likely due to factors that include rapid home price inflation, mortgage rate increases, but keep in mind mortgage rates were over 18% in 1981, limited housing supply, investor competition for starter homes and delayed family formation.
[00:05:10] What does this mean?
[00:05:11] The median first time home buyer age 40 has already spent almost the first half of their working life paying for housing as a service and they're only 25 years from Social Security eligibility This reduces the number of years to pay down mortgage principal, reduces the number of years to benefit from home asset appreciation, and reduces the amount of home equity the owner will build and access through home equity lines to fund home upgrades, children's education and other expenses and investments.
[00:05:39] In short, homeowners have something that looks like a home subscription as a service that eliminates one path to building wealth and equity that could drive economic growth.
[00:05:49] Signal 3 Mortgage rates have increased but are low in historical context the current view on mortgage rates is that they're so high they're impacting homeownership. When we focus on a near term view of mortgage rates over the past few years, that may be true, but that changes when we see it in a bigger context.
[00:06:08] What does this mean?
[00:06:09] While the 30 year mortgage at over 6% is 50% higher than the 4% mortgages of 2021, a 6% mortgage rate compared to the 18% mortgages of 1981 is the deal of the half century.
[00:06:23] Mortgage rates have steadily declined since 1981, which has fueled homeownership as well as many other forms of business and personal investment.
[00:06:31] Lower rates and easy money also led to a boom in lending with looser lending standards that erupted in the 2008 financial cris.
[00:06:39] But the overall trend has been toward lower rates, increasing affordability of mortgages. For more on federal funds rate and context, see our Sales Globe Signals August issue. How will interest rates impact your customers and your opportunities?
[00:06:53] Signal 4 Homeownership affordability has become more interest rate dependent than price dependent over time. When we look at the affordability of homeownership over a period of years, we see two views that together reveal a shift in what makes homeownership affordable.
[00:07:10] Mortgage Burden the percent of income required to pay the principal and interest on a mortgage has surprisingly decreased over a period of decades. In 1984, 38% of the median homeowners paycheck went to paying the median mortgage. That portion decreased to 31.5% in 2024.
[00:07:27] Strangely, this runs counter to the narrative about the increasing cost of homeownership. But let's look at it from another angle. The ratio of median home price to to median household income has increased over that same period.
[00:07:41] In 1984, the median price of a home was about 3.5 times the size of a median homeowner's paycheck. That ratio increased to just over five times the home price versus income in 2024, hitting a peak of six times income in 2022.
[00:07:56] What does this mean beyond the Surface of the declining mortgage burden is the fact that this improvement was largely driven by falling interest rates, the not by home prices staying in line with income.
[00:08:08] In fact, the home price to income ratio tells a different story.
[00:08:12] Homes have become structurally less affordable for 40 years, making home buyers heavily interest rate dependent.
[00:08:19] Rates increased and mortgage burden popped from 24% to over 35% in a matter of months, like touching a hair trigger. Taking this further, assuming the same percent down payment in 1984 and 2024, for example 10% or 20%, the rising multiple of home price to income makes saving for a down payment even harder, especially given all the additional expenses households have competing for that money today that didn't exist in 1984, for example TV subscriptions, Internet service, security systems, technology, hardware and software Signal 5 housing supply for sale has tightened relative to Population One of the big drivers of price increases is strong demand, which in the case of homes has been dampened by higher mortgage rates.
[00:09:09] The other big driver of price increases is tight supply, which is at play in the housing market.
[00:09:14] On the supply line alone, the total US Housing inventory for sale has declined from a peak of just over 4 million in July of 2007, just before the 2008 financial crisis, to just over 1 million in 2024, a 75% decrease.
[00:09:31] That would be a huge drop in supply even if the number of potential buyers remained Constant.
[00:09:37] However, the US population has grown from about 282 million in 2000 to 341 million people in 2024 and potential buyers along with that further tightening availability of inventory for both existing and new homes that include single family houses, condominiums and co ops. What does this mean?
[00:09:59] Supply of housing inventory for sale per person has tightened by more than 220% from 144 people per home for sale in 2000 to 322 people per home for sale in 2024.
[00:10:13] This dramatic tightening of supply has been a major contributor to the increase in home prices and the increase in home price to income ratio we saw earlier, which has outpaced income growth.
[00:10:24] Median home prices outpaced inflation with its largest jump after 2011.
[00:10:30] Tightening home supply may be a major factor driving this increase.
[00:10:34] Signal 6 the cheaper to rent than buy myth may be clouding the understanding of would be buyers.
[00:10:41] The media has recently parroted the cheaper to rent than buy message, which is great for their provocative headlines, especially considering all the signals reviewed above. But the cheaper to rent argument assumes that people look at costs and benefits only monthly. Again, luring would be Buyers into the Life as a Service trap what does this mean?
[00:11:00] While it's true that in many markets monthly rent is less than a monthly mortgage payment at current prices and interest rates, the monthly cost assumption doesn't consider the non monthly financial benefits of homeownership even at higher monthly costs. These benefits include the fact that part of the monthly payment goes toward equity.
[00:11:17] Mortgage interest and property taxes are often tax deductible at year end. The real estate asset has a high likelihood of appreciating over a period of years and equity can be leveraged at a lower rate than consumer credit. But if would be buyers only look at housing as a monthly service cost, they may never have access to these benefits.
[00:11:36] What does this mean for profitable revenue growth?
[00:11:39] Now we know some of the big signals around the housing market and the risks of life as a service for the next generation.
[00:11:45] 1. The 50 year mortgage is not a panacea for homeownership affordability.
[00:11:50] 2. First time homebuyers are showing up late to the mortgage burning party.
[00:11:55] 3.
[00:11:56] Mortgage rates have increased but are low in historical context.
[00:12:01] 4. Homeownership affordability has become more interest rate dependent than price dependent over time.
[00:12:08] 5. Housing supply for sale has tightened relative to population.
[00:12:14] 6. The cheaper to rent than buy myth may be clouding the understanding of would be buyers.
[00:12:20] Lets look at some of the dynamics of how your organization may address the needs of your customers in the home buyer market or your customers that serve these end customer home buyers.
[00:12:29] Different Motivators Homeowners versus Landlords for the same asset a house, townhouse or condo. The economic motivators are very different and contribute to the economy in different ways. Landlord and Investor Motivations Homes have been a longtime staple for real estate investors as they bring a valuable product to the market for renters and many of whom are stepping toward home ownership.
[00:12:52] Landlord and investor motivations are primarily to maximize net operating income, which means maximizing rental revenue with the highest price the market will bear, minimizing operating expenses but not spending or shifting costs like maintenance to the tenant. Landlord and Investor Motivations Homes have been a longtime staple for real estate investors and they bring a valuable product to the market for renters, many of whom are stepping toward homeownership.
[00:13:18] Landlord investor motivations are primarily to maximize net operating income. This means maximizing rental revenue with the highest price the market will bear, minimizing operating expenses by not spending or shifting costs like maintenance to the tenant, investing only what's required to market the property, keep tenant satisfaction up and meet local regulations.
[00:13:41] Homeowner motivations Homeowners, on the other hand, have a very different set of motivators.
[00:13:46] In most cases, their motivators are to maximize quality of life and utilization of the home.
[00:13:52] Rather than looking at net operating income like an investor, they're spending in other ways that are attached to the property. These include investing in home improvements and discretionary upgrades to improve livability and home value.
[00:14:04] Maintaining the property often beyond what a landlord would in a rental home, spending on outdoor improvements like hardscaping and landscaping. These are a no man's land for who will pay the bill in rental houses.
[00:14:17] Leveraging home equity lines a credit to fund it all which would be non existent in a rental home. While the investor service of transitioning tenants to eventual homeownership is valuable, a decline in homeownership is not good for economic health.
[00:14:31] If the mix shifts toward rentals, spending will likely shift away from discretionary upgrades to maintenance minimums, slowing demand for higher end home goods and furnishings, renovation services and building products.
[00:14:44] Weakening the Equity Engine Life as a service weakens the equity engine that fuels the economy. Through less discretionary spending funded by home equity lines, less collateral for other real estate investments or starting new businesses, and less capacity to absorb family financial events like medical costs, job layoffs and college tuition that's not covered by savings and later in life, many seniors are turning to equity built over the years to fund their retirement and and enable them to age and place in their family home rather than moving to a senior living community.
[00:15:14] None of this would be possible in the future. In a life as a service model, how might you help your customers? If you serve the markets that depend on homeowners such as financial services, home goods, furnishings, home services, building materials and real estate, you have opportunities.
[00:15:32] 1. Improve entry points and flexibility for home ownership.
[00:15:36] If you're in finance, housing or related services, design products that help renters build credit and qualify sooner and become homeowners earlier in life with loan durations that allow them enjoy the benefits of the equity they build, create offers that align with new homeowner mobility and allow them to take their mortgages with them.
[00:15:55] Portable mortgages, now used in Canada, the uk, Europe and Australia, give the homeowner the ability to move their mortgage to the next property, adjust the balance based on the price while maintaining the interest rate and term. Since the average homeowner lives in their home for about 12 years less for first time buyers, portability gives them more flexibility and can also open up inventory of owners unwilling to sell and lose their current low interest rates. Explore rent to own structures or shared equity models that get households on the ladder without the traditional 20% down payment.
[00:16:29] Build long horizon down payment accumulation products with automated contributions and matching incentives from employers or partners.
[00:16:37] If you're in financial services, instead of rounding up the credit card purchased to the next dollar, round it to the next 10 or 20. Then create an extra incentive to pay the credit card bill in full monthly to avoid interest charges. You may lose some short term interest in the interest of capturing new customers earlier in their careers with a huge lifetime value.
[00:16:57] 2. Make homeownership operations more affordable. Opportunities abound across sectors.
[00:17:04] Financial Services Develop home equity products that are transparent, responsibly underwritten and easy to manage digitally to make them simple to use for home operations.
[00:17:14] Home goods and furnishings offer modular, upgradable solutions that fit smaller spaces now and scale later with the first home purchase.
[00:17:23] Create financing options that don't trap customers in revolving debt, but make them customers through each stage of home ownership. Home services and utilities help customers manage their total cost of occupancy with maintenance plans and bundled services that flatten surprises rather than spike them. 3. Serve the investor and landlord side of the asset Investors own about 20% of the 86 million single family homes in the United States, with small and midsize investors owning 85 to 90%. In institutional investors owning the remaining 10 to 15% of the total investor share. As investor ownership continues to grow due to opportunities from worsening homeowner affordability, you may consider opportunities to create offers specifically for small and mid sized investors to make property acquisition easier, including ready lines of credit, faster closings, smoother diligence periods ready to go insurance, renovation services without contractor hassles and pre designed tenant marketing and brokerage packages.
[00:18:26] Develop services for landlords and professional property managers to make managing easier, including maintenance and management services, property monitoring, property management technology and tenant experience offers.
[00:18:39] Segment your messaging and offers for investors and landlords to address their priorities around risk speed and operating income creation.
[00:18:47] 10 questions about your customer strategy for the housing market to set your direction, here are 10 questions you may ask your organization.
[00:18:56] 1. Where does our growth today depend directly or indirectly on homeownership levels in our core markets?
[00:19:03] 2. How exposes our revenue to a continued shift from owner occupied homes toward rentals or institutional ownership?
[00:19:11] 3. What specific customer segments meaning first time buyers, move up buyers, small landlords, institutional landlords are untapped potential for us.
[00:19:22] 4. If the median first time buyer age stays consistent or increases, how does that change the timing and nature of demand for our products and services?
[00:19:31] 5. What would a housing as a service world mean for our offers and could we create subscription or usage based models that fit monthly cash flow thinking?
[00:19:41] 6. Where could we partner across finance, real estate, home services and home products to lower the friction of getting into a first home or staying in 1? 7. If the housing market is an opportunity for us, how will we monitor the key signals and who in our organization is accountable for acting on them? 8. What assumptions about normal mortgage rates, cost of capital and other housing market indicators are baked into our current three year plan and how can we capitalize if the market shifts from those assumptions?
[00:20:12] 9. How can we help our business to business customers translate today's housing environment into their own growth strategies that may involve our offers?
[00:20:21] 10. If a 50 year mortgage becomes common in our markets, what new offers like Bundled life Services would we build to align with a life as a service customer?
[00:20:31] Your Call to Action each of the questions that apply to your organization should prompt valuable conversation and ideas around your business and your customer strategy for the housing market.
[00:20:41] Homeownership has been one of the quiet engines of the US Economy, fueling spending, entrepreneurship and wealth creation for generations.
[00:20:49] The signals we're seeing now suggest the engine is under strain, especially for younger households. Look at each of the signals we discussed around home prices, rates, affordability, homeownership and buyer age. Then consider their impact from two perspectives. How will they affect your customers and their ability to grow, and how will they affect your business?
[00:21:08] Get beyond current state and ask your team where they see the signals projecting ahead and what this means for your organization's profitable growth. Consider each of the questions I've asked, add your own, create a plan and get into action. If you have questions for us, drop us an
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