Wednesday, September 21, 2011

Housing

I bought my house in 1972, a little "fixer-upper" in the middle of the city on its own one-third acre.  I paid
$8,375 dollars for it and I was working at the local cannery, making about $2 dollars an hour at the time.
My monthly mortgage payment was $75 dollars, about one week's paycheck.  My utility bills for electricity, sewer and water were never over twenty dollars in a month.
   In today's dollars that same job might pay $16 dollars an hour, eight times what I was making.  If you do the math a small "starter house" should cost about $72,000, the same eight times what I paid for mine, with utilities costing another $160 for the month.
   I first began worrying about our economy in the 1980's when all this math didn't add up.  The cost of housing has always been 25% of income, that is what my parents paid and my grandparents before them.
It has always been how banks write formulas for mortgages.  It is what your landlord looks for when you fill out a rental application.
   The prices creeped up.  It was like the non-existent McDonald's Dollar Menu or raising the price of gasoline a nickle at a time.  And a little bit like cancer too.
   In the 1990's it all went nuts.  A part of the American Dream has always been home ownership leading to a stable, conservative society.  Prosperity and family values.  All good things.
   With bad outcomes.  New development, new housing created new standards of construction, always more, bigger, better, shinier.  The latest in everything.  Housing became expensive.  Twenty times and at its highest, thirty times what I paid for mine.  Wages could not keep pace.  It took two incomes to buy a house, sometimes two jobs.  We became so busy we had homes we could only sleep in.
   Then they became bank accounts!  It became so easy to refinance, steal that new found free equity and buy a car!  This was the driving force in our economy during the 1990's.  Free money it seemed, every month the equity in our homes would increase and that became the solution.  We lost the idea of working hard, the idea of saving and even the idea of spending money wisely.  We could refinance.  Borrow money at a cheaper interest rate, get a lump sum and our payments would be less!!!
   Such a deal and we fell for it.  Never, ever thinking about the next guy.  The young person just starting out, what has been done to the price of housing that put it beyond reach.
   What is happening in our economy today is a dose of reality.  Market adjustment.  Math.
   Housing prices are falling, our equity disappearing and that is a good thing.  Math doesn't lie.

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4 comments:

Tiffiny said...

Interesting. Too bad the cost of living doesn't match the wages like it once did. Do you think what's happening in the economy is possibly a way back to it? A lot of excruciating tough times to get back to balance.

freebird said...

And I hope the market doesn't go back up too fast. The politicians and realtors want the prices to start climbing but truthfully, they aren't down where they need to go yet!

AutumnLeaves said...

Somehow this post is an affirmation of a decision Michael and I have been mulling over about this house we are in. We may walk away from our deposit (4k) because we don't think the house is worth what they want for it. It is 100+ years old, not at all modernized, no central air, no garage, small lot and needs total rehaul. We think we could get more updates and at least C/A and a garage for this price.

stonepost said...

AutumnLeaves, the trick to buying a house is location, location, location. The best deal has always been the worst house in the best neighborhood. Don't forget that.