The American Housing Squeeze: What Dubai Investors Can Learn from U.S. Affordability Woes

When the rent or mortgage payment swallows half of the annual income, it can signify serious trouble in the U.S. housing market. Unfortunately, the unfortunate truth of the matter is that more than half of Americans are in this exact situation. The most unfortunate victims of this scenario, though, are the young buyers trying to purchase their first home. First time buyers are crucial to a lot of real estate trends, and their struggles signal a potential catastrophe ahead for the U.S. market. Housing market problems in America might seem a world away from here in Dubai, but with global economies rapidly and constantly intertwining, any housing market problem is quickly becoming everyone else’s problem. Even real estate investors looking to make their mark in other parts of the world are indirectly affected.

The housing affordability challenges facing younger generations are stark – especially when measured against the relatively easier circumstances of older cohorts. Redfin’s housing affordability survey for Generation Z found two-thirds of adults in that age group find it difficult to afford to buy a home while less than a third of Baby Boomers feel the same way. In our view this is a hugely significant piece of research and should serve as a useful proxy for Dubai property buyers when considering the impact that looming global economic pressures may have on the emirate’s property market.

The cost of homes in the US is far above the median wage of $86,000, or about $111,000 a year, and the interest rates for mortgages, although coming down, are still quite high. This has priced out many first time buyers due to worries over job security, tariffs on goods such as steel and aluminium, and fall in house prices. These are global trends that will come to Dubai in time, and may also influence foreign investors, such as those from China.

The cost of inflation is more than just money. Millions of Americans are having to change the way they live. Cutting back on things they enjoy. Forgoing doctor visits. Even taking on second jobs and moving in with relatives. Interestingly, a full third of Gen Z has taken on a side hustle or moved in with mom and dad to afford inflation. Meanwhile, only 27% of Gen Z members own a home—the percentage will be lower if you adjust for age, since older Americans are more likely to own. Getting into the housing market, one of the most basic human goals in life, can be a huge milestone and it appears Gen Z is going to have to wait much longer to achieve it.

Unfortunately for many homeowners, the outlook for housing affordability is unlikely to improve in the short term. Global and domestic forces should keep mortgage rates around 6 per cent, price growth in check and wages possibly increasing at a rate that is faster than the rate of property appreciation. That should at least ease the burdens faced by aspiring first-time buyers, and serve as a gentle reminder to some Dubai-based investors to keep an eye on the horizon and to remember the rewards of patience and good timing.

Key Insights for Dubai Buyers & Investors:

1. Younger generations and the impact of tightening affordability: Examine how younger generations’ preferences evolve as affordability tightens and understand how these preferences translate into demand in global markets.
2. Rate & Activity Monitor – Global Watch Mortgage rates and other market indicators are factors that can affect buyers in real estate. Expect trends to evolve and keep an eye on the mortgage rate environment as well as broader banking market constraints resulting from the heightened global risk environment that may negatively affect liquidity and future buyer profiles.
3. An expat living in Dubai may find it appealing because the cost-to-income ratio is slightly lower than in Singapore and the quality of life is far more vibrant. Expect more countries to emerge as alternatives to traditional destinations such as the UAE and Singapore as demand and supply shifts. A number of other markets, including a growing number of cities in the Middle East like Dubai and others we will introduce shortly, will become relevant to international investors.
4. Macro-economic issues affecting countries such as the US, China and UK (employment, tariffs, political issues etc.) can have an impact on real estate transactions and investor’s confidence.

The Final Call:

Affordability isn’t just a national issue – it’s a global red flag that should be considered by international investors. Savvy Dubai investors would be wise to take notice. Understanding global market dynamics; recognising key market timing, diversification and global trends that are developing in these countries, and then taking action, are all key to coming out on top of any economic shocks.