FILE PHOTO: An “Open House” sign outside of a home in Washington, DC, US, on Sunday, Nov. 19, 2023.
Nathan Howard | Bloomberg | Getty Images
When Maryland Governor Wes Moore was 8 years old, his mother told him she wanted to send him to military school to correct his behavior.
Yet it wasn’t until he was 13 that she finally did send him to a military school in Pennsylvania. He ran away five times in the first four days.
“That place ended up really helping me change my life,” said Moore while speaking about retirement security at a BlackRock conference in Washington, D.C., on March 12.
One obstacle — the tuition costs — prevented his mother from sending him sooner, he said.
Moore was able to attend the school thanks to help from his grandparents, who borrowed against the home they bought when they immigrated to the U.S., to help pay for the first year’s tuition.
“They ended up sacrificing part of their American dream so I could achieve my own,” Moore said.
“That’s what housing helps provide,” Moore said. “It’s not just shelter. It’s security; it’s an investment. It’s a chance you can tap into something if an emergency happens. It’s a chance that you now have an asset that you can hold onto, and you can pass off to future generations.”
After retirement funds, housing generally represents the second-most-valuable asset people have, Moore said.
Some now less likely to own homes than in 1980
Yet achieving that homeownership status can feel unattainable to prospective first-time buyers in today’s economy.
Around 30% of young Maryland residents are thinking of leaving the state because of high housing costs, Moore said.
Both renters and homeowners across the U.S. are struggling with high housing costs, according to a 2024 report from the Joint Center for Housing Studies of Harvard University. The number of cost-burdened renters — meaning those who spend more than 30% of their income on rent and utilities — climbed to an all-time high in 2022. At the same time, millions of prospective homebuyers have been priced out by high home prices and interest rates.
Many hopeful first-time home buyers may feel that it was easier for their parents and grandparents’ generations to reach home ownership status.
Since 1980, median home prices have increased much faster than median household incomes, according to recent research from the Urban Institute.
Across the country, today’s 35- to 44-years olds — who are in their critical homebuying years — are less likely to be homeowners than in 1980, according to the research.
For that age cohort, the homeownership rate has dropped by more than 10% compared to 45 years ago, the Urban Institute found. Because today’s 35- to 44-year-olds are also forming households at a lower rate, that number is likely understated, according to the research.
Ultimately, that can have lasting impacts on their ability to build wealth, said Jun Zhu, a non-resident fellow at the Urban Institute’s Housing Finance Policy Center.
“When you have a house, when the house appreciates, you’re going to earn home equity,” Zhu said. “Earning home equity is actually a very important way to earn wealth.”
Those 35- to 44-year-olds who are in lower income quartiles have seen the biggest declines in homeownership compared to their peers. That is driven in part by the fact that people who are married are more likely to be homeowners, while lower-income individuals are less likely to be married.
Education is also a factor in widening the homeownership gap, according to the Urban Institute, as a smaller share of heads of households who have the lowest incomes are getting college degrees.
Racial divide in homeownership rates persists
Separate research from the National Association of Realtors also points to a racial divide with regard to housing affordability.
In 2023, the latest data available, the Black homeownership rate of 44.7% saw the greatest year-over-year increase among racial groups but was still well behind the white homeownership rate of 72.4%. Other groups fell in between, with Asians having a 63.4% and Hispanics having a 51% homeownership rate.
Strong wage growth and younger generations reaching prime home buying age contributed to the increase in Black homeownership in 2023, said Nadia Evangelou, senior economist and director of real estate research at the National Association of Realtors.
Yet the Black homeownership rate has stayed below 50% over the past decade, Evangelou said, which means most continue to rent instead of owning. That ultimately limits their ability to grow their net worth and accumulate wealth.
Policy changescould make it easier for Americans to buy their first home. That could include providing educational opportunities for low-income households, offering down payment assistance and encouraging housing production by reducing zoning restrictions or other regulatory barriers, according to the Urban Institute.
Many Americans are paying a hefty price for their credit card debt.
As a primary source of unsecured borrowing, 60% of credit cardholders carry debt from month to month, according to a new report by the Federal Reserve Bank of New York.
At the same time, credit card interest rates are “very high,” averaging 23% annually in 2023, the New York Fed found, also making credit cards one of the most expensive ways to borrow money.
“With the vast majority of the American public using credit cards for their purchases, the interest rate that is attached to these products is significant,” said Erica Sandberg, consumer finance expert at CardRates.com. “The more a debt costs, the more stress this puts on an already tight budget.”
Most credit cards have a variable rate, which means there’s a direct connection to the Federal Reserve’s benchmark. And yet, credit card lenders set annual percentage rates well above the central bank’s key borrowing rate, currently targeted in a range between 4.25% to 4.5%, where it has been since December.
Following the Federal Reserve’s rate hike in 2022 and 2023, the average credit card rate rose from 16.34% to more than 20% today — a significant increase fueled by the Fed’s actions to combat inflation.
“Card issuers have determined what the market will bear and are comfortable within this range of interest rates,” said Matt Schulz, chief credit analyst at LendingTree.
APRs will come down as the central bank reduces rates, but they will still only ease off extremely high levels. With just a few potential quarter-point cuts on deck, APRs aren’t likely to fall much, according to Schulz.
Despite the steep cost, consumers often turn to credit cards, in part because they are more accessible than other types of loans, Schulz said.
In fact, credit cards are the No. 1 source of unsecured borrowing and Americans’ credit card tab continues to creep higher. In the last year, credit card debt rose to a record $1.21 trillion.
Because credit card lending is unsecured, it is also banks’ riskiest type of lending.
“Lenders adjust interest rates for two primary reasons: cost and risk,” CardRates’ Sandberg said.
The Federal Reserve Bank of New York’s research shows that credit card charge-offs averaged 3.96% of total balances between 2010 and 2023. That compares to only 0.46% and 0.43% for business loans and residential mortgages, respectively.
As a result, roughly 53% of banks’ annual default losses were due to credit card lending, according to the NY Fed research.
“When you offer a product to everyone you are assuming an awful lot of risk,” Schulz said.
Further, “when times get tough they get tough for most everybody,” he added. “That makes it much more challenging for card issuers.”
The best way to pay off debt
The best move for those struggling to pay down revolving credit card debt is to consolidate with a 0% balance transfer card, experts suggest.
“There is enormous competition in the credit card market,” Sandberg said. Because lenders are constantly trying to capture new cardholders, those 0% balance transfer credit card offers are still widely available.
Cards offering 12, 15 or even 24 months with no interest on transferred balances “are basically the best tool in your toolbelt when it comes to knocking down credit card debt,” Schulz said. “Not accruing interest for two years on a balance is pretty hard to argue with.”
Andrew Ross Sorkin speaks with BlackRock CEO Larry Fink during the New York Times DealBook Summit in the Appel Room at the Jazz at Lincoln Center in New York City on Nov. 30, 2022.
In a new letter to investors, Fink writes the traditional allocation comprised of 60% stocks and 40% bonds that dates back to the 1950s “may no longer fully represent true diversification.”
“The future standard portfolio may look more like 50/30/20 — stocks, bonds and private assets like real estate, infrastructure and private credit.” Fink writes.
Most professional investors love to talk their book, and Fink is no exception. BlackRock has pursued several recent acquisitions — Global Infrastructure Partners, Preqin and HPS Investment Partners — with the goal of helping to increase investors’ access to private markets.
The effort to make it easier to incorporate both public and private investments in a portfolio is analogous to index versus active investments in 2009, Fink said.
Those investment strategies that were then considered separately can now be blended easily at a low cost.
Fink hopes the same will eventually be said for public and private markets.
Yet shopping for private investments now can feel “a bit like buying a house in an unfamiliar neighborhood before Zillow existed, where finding accurate prices was difficult or impossible,” Fink writes.
60/40 portfolio still a ‘great starting point’
After both stocks and bonds saw declines in 2022, some analysts declared the 60/40 portfolio strategy dead. In 2024, however, such a balanced portfolio would have provided a return of about 14%.
“If you want to keep things very simple, the 60/40 portfolio or a target date fund is a great starting point,” said Amy Arnott, portfolio strategist at Morningstar.
If you’re willing to add more complexity, you could consider smaller positions in other asset classes like commodities, private equity or private debt, she said.
However, a 20% allocation in private assets is on the aggressive side, Arnott said.
The total value of private assets globally is about $14.3 trillion, while the public markets are worth about $247 trillion, she said.
For investors who want to keep their asset allocations in line with the market value of various asset classes, that would imply a weighting of about 6% instead of 20%, Arnott said.
Yet a 50/30/20 portfolio is a lot closer to how institutional investors have been allocating their portfolios for years, said Michael Rosen, chief investment officer at Angeles Investments.
The 60/40 portfolio, which Rosen previously said reached its “expiration date,” hasn’t been used by his firm’s endowment and foundation clients for decades.
There’s a key reason why. Institutional investors need to guarantee a specific return, also while paying for expenses and beating inflation, Rosen said.
While a 50/30/20 allocation may help deliver “truly outsized returns” to the mass retail market, there’s also a “lot of baggage” that comes with that strategy, Rosen said.
There’s a lack of liquidity, which means those holdings aren’t as easily converted to cash, Rosen said.
What’s more, there’s generally a lack of transparency and significantly higher fees, he said.
Prospective investors should be prepared to commit for 10 years to private investments, Arnott said.
And they also need to be aware that measurement issues with asset classes like private equity means past performance data may not be as reliable, she said.
For the average person, the most likely path toward tapping into private equity will be part of a 401(k) plan, Arnott said. So far, not a lot of companies have added private equity to their 401(k) offerings, but that could change, she said.
“We will probably see more plan sponsors adding private equity options to their lineups going forward,” Arnott said.
Aubrey Bertram was starting to imagine her life without student debt.
Bertram, a staff attorney at Wild Montana, a nonprofit that works on land conservation in the state, had just around two and a half years left of payments before her $247,804 federal student loan balance would be excused under the Public Service Loan Forgiveness program.
Many of those borrowers remain in a forbearance that doesn’t bring them closer to debt forgiveness, while the Trump administration recently revised other student loan repayment plans to no longer conclude in debt cancellation.
D’Aungilique Jackson, of Fresno, California, holds a “Cancel Student Debt” sign outside the U.S. Supreme Court in Washington, D.C., after the nation’s high court struck down President Joe Biden’s student debt relief program on Friday, June 30, 2023.
Kent Nishimura | Los Angeles Times | Getty Images
Many federal student loan borrowers who enrolled in the Biden administration-era SAVE, or Saving on a Valuable Education, plan remain in a forbearance as a result of GOP-led legal challenges to the program. But unlike the Covid-era pause on student loan bills, this forbearance does not give borrowers credit toward debt forgiveness under an income-driven repayment plan or Public Service Loan Forgiveness.
A recent U.S. appeals court decision blocked SAVE, as well as the loan forgiveness component under other income-driven repayment plans.
Historically, at least, IDR plans limit borrowers’ monthly payments to a share of their discretionary income and cancel any remaining debt after a certain period, typically 20 years or 25 years. PSLF, which President George W. Bush signed into law in 2007, allows certain not-for-profit and government employees to have their federal student loans wiped away after 10 years of payments.
“In the end, we may see borrowers lose over a year of monthly payments to count toward forgiveness,” said Elaine Rubin, director of corporate communications at Edvisors, which helps students navigate college costs and borrowing.
If you’re eager to be back on your way to debt cancellation, you have options, experts say.
The IDR plans open now, according to the Trump administration, are: Income-Based Repayment, Pay As You Earn and Income-Contingent Repayment.
“The caveat on ICR and PAYE is that automatic forgiveness after 20 or 25 years is not available now since the courts have questioned that permissibility under statute,” said Scott Buchanan, executive director of the Student Loan Servicing Alliance, a trade group for federal student loan servicers.
Still, if a borrower enrolled in ICR or PAYE, then switches to IBR, their previous payments made under the other plans will count toward loan forgiveness under IBR, as long as they meet the plan’s other requirements, Buchanan said.
Meanwhile, borrowers in any of the three IDR plans can get credit toward PSLF.
Those who want to be making progress toward debt cancellation should see which plan comes with a monthly payment they can afford. There are several tools available online to help you determine how much your monthly bill would be under different options.
For now, Bertram has decided to stay put in the SAVE forbearance, even though she’s not moving any closer to debt forgiveness. She’s worried she’ll switch into a new repayment plan only to find that program has also been halted or amended.
“You’re constantly being jerked around by political rhetoric,” Bertram said. “I just hope I’m student-debt free before I’m 40.”