You CAN have an Affordable Home

M-5 Money

Why does everything cost so much?!

That question is the key in the struggle to make a place for yourself. Building a life is tough. Finding your way, meeting a mate, raising a family, working hard to have the best quality of life, then looking ahead to the future when old age will make working hard less of an option; all of these trials are part of ‘everything’ in that question.

The answer is :

Because we keep planning such expensive houses!

The questions are :

How did American homes get so expensive?
How did we get in this mess?
How can we get out of it?

Think about the homes your grandparents and great-grandparents lived in, the ones they lived in when they were debt-free, took real vacations, and could still afford to help your parents financially. Now think about the home you might have lived in in the 1990’s and early 2000’s, the one with all the modern bells and whistles, the one in which you could never be debt-free, never take a real vacation, or ever save any money at all, not to mention help your children and grandchildren.

The difference is desire. Your grandparents didn’t desire too many things, so their homes were simple. You might think there wasn’t much to choose from, but there was. What they did desire they did without until they could buy without borrowing any money. That meant no high credit-card balances, no second mortgages, and no borrowing from personal retirement accounts. The 1990’s saw desire come alive in the national natural “I want it all and I will now!” People wanted too much, too soon; more than they could pay for for more money than they could manage. The American home was and is a reflection of that desire-beyond-reason.

The chart below shows the main items from three similar sized kitchens from three different eras:

THEN – affordable – your grandparents era;
NOW – stupidly expensive – your era;
FUTURE – affordable again (hopefully your future era).

I know it’s accurate because I’ve designed thousands of houses that have every item in the Now column. Look and learn. Think about your future – the one with vacations and a savings account, and don’t make the same mistakes again.

ITEM	~	THEN	~	NOW	~	FUTURE
Dishwasher		✅		✔		✅
Commercial Range				✔
Cooktop				✔
Double Oven				✔
Dual Refrigerators				✔
Garbage Disposal				✔		✅
Instant Hot Water				✔
Microwave				✔		✅
Counter-top Oven						✅
Range & Oven		✅				✅
Pot Filler				✔
Steam Cabinet				✔
Warming Oven				✔
Ceramic Tile Counters				✔
Laminate Counters		✅
Stone Counters				✔
Stone-Composite Counters				✔
Sink – Main Standard		✅				✅
Sink – Main Farmhouse or Specialty				✔
Vegetable Sink				✔
Ceramic Tile Floor				✔
Vinyl Floor		✅				✅
Wood Floor
Task Lighting				✔		✅
Specialty Lighting				✔
Counter Length		12′		36′		18′

There was a time in America when, as a nation, there was a cultural agreement that while money was important, frugality was more so. Desire was controlled. That was a golden time for our nation. We built a world class interstate highway system, went to the Moon, created personal computers, constructed communications networks, and fed the hungry all over the world. We did it by being cautious about desire. Those with moderate means did not try to live in palaces, or live like kings. Those with the means of kings still chose to live moderately enough to protect their wealth in the long term. Certainly there was ambition, but it was tempered with concepts like long-term-planning, living-within-your-means, looking-at-the-big-picture, and patient-planning-for-prosperity. The nation was prosperous. That was THEN.

What happened next, nationally, was an attitude-shift from patiently cultivating prosperity to I-want-it-all-and-I-want-it-now! From individuals to corporate mega-companies, everyone was in on it.

The Beginning

As an oversimplified point of beginning, the entertainment industry began telling stories using the almost subliminal concept of heightened reality. That’s when several TV characters would live in expensive apartments surrounded by every new style of household amenity and wardrobe appointment but with no apparent way to support themselves. It’s not television’s fault. It was just fictional entertainment. But, a viewing public bought into the idea of heightened reality, and began to convert a not-real-at-all lifestyle made for entertainment into a set of mainstream desires which the viewing public believed it couldn’t live without. A viewing public is a buying public, and that buying public had a profound influence on those who make things to buy.

The manufacturers of appliances, fixtures, and decorating amenities dazzled an eager public with amazing products that promised a higher life, …..and delivered it – but at a higher cost.

New and exciting became the by-words in the home planning industry as designers sought to incorporate all those dazzling gadgets, and pursued the development of larger, more complex designs to sell – but for higher fees.

The house and garden television industry seized the obvious opportunity to script shows and create advertising packages according to the wants and whims of viewers desperate to buy the sponsors’ products.

The Home Builders and Remodelers of the nation saw opportunities to build more housing units than ever, and by offering tantalizing upgrades, which included more square footage along with all those amazing gadgets, were able to “assist” almost every prospect to acquire a real American Dream Home – for a higher sales price.

A new breed of home industry participant emerged – the Flipper. Mesmerized by the combination of TV entertainment and home remodeling, which portrayed the possibility of big profits from small investments, the Flippers bought up everything from run-down shacks to luxurious beach-front condominiums. The process was simplicity itself – buy low, spend a little to fix it up, sell high. But as more Flippers joined the fray it turned into buy high, sell higher. At the peak of the frenzy the process became buy highest……. Oh crap!

The Real Estate Sales Industry, by its very nature, promoted the inflation in value of premium as well as not-so-valuable properties, and succeeding, gained financially by selling heightened reality dream homes to an eager public – but for higher commissions.

The only glitch in the process was the inability of the market place to respond. That is, the people who wanted all those really expensive homes couldn’t afford to buy them. There just wasn’t enough money. The solution was ready and waiting in the banking business. If cash wasn’t available for buyers to borrow, then loans could be written which would help people purchase homes that were real with money that wasn’t.

Some banks made loans backed up – not by investors with cash – but by future earnings, à la Enron accounting practices by counting future profit in the present as if it already happened, and that meant the money being used to underwrite mortgages didn’t actually exist. But loaning non-existent money wasn’t seen as a problem. The system only had to keep churning long enough for real money to catch up with false funds.

To keep the pot stirred a special device – the deferred balloon-note – was instituted as an incentive to motivate buyers by alleviating the fear of mortgage payments. These mortgages would begin with small payments then, later, balloon into large payments… hopelessly large payments. The most common quote from banker to buyer was “Don’t worry about the balloon note. You’ll refinance or sell long before that kicks in.” Homeowners simply had to keep refinancing and reselling their homes in order to avoid the huge payment increase when the “balloon” inflated. For the economy, as long as un-real money was replaced by real mortgage payments on time in the future, there wouldn’t be a problem.

But there was a problem.

The availability of lots of cheap money – real or not – just waiting to be used to build an expensive house, which could be sold quickly for a high profit, became the scheme of things. Ultimately, the very ones who inadvertently worked together to create that scheme – the individuals, the gadget makers, the designers, the real estate sellers, the house and garden TV people, builders, remodelers, flippers, and bankers – were drawn into it, captivated by the glistening beauty of a housing market where the homes and condominiums appeared to be made of pure gold. Those who signed the dotted line for artificially cheap mortgages and the promise of easy riches, the ones trying to live too high, too fast, too soon, needed to sell their homes at a profit before the balloon payments started. So, at about the same time almost everyone signed up for cheap mortgages, which meant their balloon notes were all coming due together. To come out financially healthy they all needed to sell to each other for the same high profit.

But too many people were in the same situation. When it was time to sell, there were no buyers, just sellers. So the owners were stuck with impending financial doom as the balloon note’s maturity date neared. When “balloon” day arrived, overnight, mortgage payments increased so much that homeowners were unable to make the new payments and the foreclosures began. The banks who made real loans with fake money failed, and that failure rippled – no, it tsunamied through the entire economy.

When lots of people sell something back and forth to each other at ever increasing prices which are supported by borrowed money….. that’s a bubble.

But when everyone is involved, and has borrowed from everyone else who is involved, and the borrowed money doesn’t even exist, and everybody needs to sell to somebody, but nobody can buy because everybody owes everybody else more money than there really is ….. that’s a bubble about to burst….and as many people know all too well….it did. That’s NOW.

Lesson

As for the future of the American home, unless the hard lessons of the economic collapse are taken to heart, we, as a nation, will repeat the same mistakes. In fact it’s already started. As 2019 began, I was sure the desires of my clients would be tempered and more conservative, such as simplicity of design, less square footage, fewer specialty gadgets, and moderation in moldings and trim (like crown molding, and door casings). But I-want-it-all is still alive and well. I routinely hear my clients say things like, “This is a custom home. I want ALL the bells & whistles,” and “The mortgage payment doesn’t matter because we’ll sell it before the balloon note matures.” There it is. That’s the stupidity that ruined America.

It’s like we’re standing in the ashes of a burned down house, and we’re going to start rebuilding without clearing the ground. This attitude has to change. But before change can come, we have to realize that change must come. Then we have to be patient and wait for things to get better, because change is never really sudden. Realization is. But, usually, realization only comes after great personal loss. Americans have suffered a great personal loss. We just have to realize why, and not repeat the same mistakes, then we can begin to heal.

Americans must all agree to wise-up in our thinking, slim-down our desires, ramp-up our patience, cut-down our spending, increase our savings, and strictly control credit-card borrowing.

Be patient. Be steady. Be sure. Be careful. Be a good American and help someone else calm down and be careful too. -AB