How The House Saves Money- Part 1: Housing

Or, How Greed and Bigotry Drive Up Housing Costs

By now, unless you live in an undisclosed mountain enclave (and sometimes even when you do, Hi Bob!), dear reader, you must certainly be aware of these terms: sub-prime, housing crisis, housing bubble, foreclosure. A phrase you will also hear a lot is average home price.

(There are going to be some statistics, but bear with me, they don't last long.)

Average is an imprecise term used to denote any of a number of ways to calculate the center of a set of data. When people talk about averages what they are generally talking about is called the arithmetic mean. It's when you take each value in the data set, add them all together, and then divide that number by how many values are in the data set. Like this: 3+6+9+50+100=168. 168 divided by 5=33.6, the arithmetic mean, or simply mean, is 33.6. A frequently more understandable way to look at the data is using a median, which the middle value in a data set when the values are lined up in order from smallest to largest (or vice versa). It is the number in which half of the values are less than the median, and half are more than the median. So in a data set of 3, 6, 9, 50, 100, 9 would be the median. Wow, turns out that Statistics course was good for something. As you can see, the average number is heavily influenced by the larger numbers in the data set, where the median number more accurately reflects the reality of the data set.

In calculating housing prices, it is extraordinarily important to know which method is being used, mean or median. The U.S Census Bureau has just such information available. Let's start with the median price of housing and the median wage in the year I was born, 1968. It was at the end of an economically stable decade, and before the oil crisis and inflation of the 1970s. In 1968, the median wage for men was $5980.00 per year, for women it was $2019.00. The median home price in 1968 was $24,700. That is roughly four times the median salary of the American man, who was usually the sole breadwinner of the family at that point in history. In 2006, the median price for homes in the U.S. was $246,500 and the median income per family (no longer just the sole, male breadwinner mind you) was $32,265. That is 7.64 times the median family income.

If we were still operating on the 1968 model, median housing prices would be about $133,200. So what has caused this top-heavy housing market? Two things: greed and bigotry.

The recent arrests of hedge fund managers points to the greed of Wall Street. Mortgage financing companies displayed their greed in pushing sub-prime mortgages and ARMs, even to more credit-worthy borrowers. Real estate developers, with their general disregard for the surrounding houses, build McMansions for in-fill development in more moderate neighborhoods. Or they clear-cut vast tracts of land and squeeze as many monster houses as they can onto that land.

And then there is the greed of the consumers themselves. The people who saw the value of their homes soar into rarified territory and "cashed-out" that new-found equity were greedy. And for what? College educations for their children? Or boats and RVs and vacation homes? How about all the things you can stock your home with to make the neighbors green with envy? Never has "keeping up with the Joneses" been so toxic.

Then there were the home-buyers who, forgetting the axiom "buy low and sell high", thought they would get rich by buying high and selling higher. I have no sympathy for those folks. When someone deliberately tries to game the system and drives housing prices higher for everyone, then they lose what little claim they had on my good graces. For decades real estate was considered to be one of the most stable investments you could make, it lacked the volatility of the stock market and value grew at a slow, but steady pace. Until the last, oh, eight years or so, when unbridled greed and and a distinct lack of compassion for one's fellow human came back into style.

Then there is a greed of spirit, a desire to be seen as more than you are. People of modest means all of a sudden wanted to appear wealthy. What better way to look wealthy than to have a mini-mansion all of your own? I knew one lady and her mint-new husband who pulled just such a caper. Way back in 1998, when houses were still reasonably priced, this couple purchased a house so huge and so expensive that they didn't have enough money left over to furnish it. The dining table was a fold-up affair, there was one sectional in the living room, and each huge bedroom contained little more than a mattress and single dresser. Whole areas of the house were just closed up, not being used. Tell me, what in the world is the point of having a huge house when you aren't even going to enter half the rooms? The point seemed to be that from the outside, they looked rich. It wasn't until you actually entered their home that you saw their absolute poverty and greed of spirit.

How does bigotry play a role in our current housing crisis? Well, many urban areas are going through "gentrification," a process which prices lower-income residents right out of the neighborhood and frequently these residents are members of a minority group. This also prices a lot of older people and single-parent families right out of the neighborhood as well. Gentrification is literally pushing diversity out of the city, or at least into rigidly-defined areas.

We have something else happening in Tulsa, a kind of "white flight" in which people eschew the smaller houses in the more affordable mid-town neighborhoods to move to the wealthier, whiter south part of town or the suburbs. Mid-town has a large mix of housing, from funky apartments to the old homes of the oil barons to modest middle-class dwellings. Anybody, with any budget, can find a place to live in the main, middle parts of town. Therein lies the problem for some people.

Oh, they never come right out and say it, but they don't want to live next to African-American people, or Hispanic people, or Native people. They are willing to live at the very edges of their means so that the only black or Mexican people they ever see in their neighborhoods are there to mow lawns or pick up the garbage. And they all have so many excuses and I've heard them all. "You get more house for your money out in _____" "They have better schools." "Mid-town is too pretentious and trendy, it's more real out south." These are all code for: "I wanted a nice, white neighborhood." Check it! Next time you hear somebody say something similar in your town, you better believe that's what it really means! Even people I thought I knew have come out with these lines, their hidden truths. It's really disturbing when I find out something this nasty about people I used to like.

So, where do we go from here? First, we have to stop being greedy bigots.

As houses sit unsold longer and longer, housing prices will be forced lower. Some people are, unfortunately, going to take a hit on property values. But maybe that's a good thing, it's time we changed our view of real estate as cash cow back to humanity's traditional view of housing--as shelter. Housing is not an investment or a path to wealth, it is a very old technology for protecting and nurturing ourselves and our loved ones, and keeping our stuff dry. As housing prices are forced back to reasonable levels, houses will cease to be tools of greed.

Then we have to start putting the resources we are no longer bleeding into the housing market into making sure that all neighborhoods are as safe as we can make them and that all schools are good schools. And we have to stop letting small-minded idiots tell us that property values are affected by the skin pigmentation of the people who live there. And we have to challenge the very people who Stephen Colbert mocks with his "I don't see color."-schtick. We have to tell them that seeing color is o.k., discriminating based on that color is not. We have to stand up and say that discriminating because someone is older and on a fixed-income is not o.k.; discriminating because someone is a single parent is not o.k.; discriminating because someone is gay is no o.k.; discriminating because someone doesn't go to the right kind of church is not o.k. We have to change this mindset and the only way to do it is to call attention to it every chance we get. I suggest loudly saying, "I find your racism (or sexism or ageism or homophobia or classism, etc.) offensive and I demand you apologize!"

"That's all well and good, Burning Prairie, but how am I supposed to save money on housing right this very minute?" you may ask. I'm getting to that, hold your horses.

I worked in a bank for many years and one of the things I learned (besides facing all my bills the same direction) was that not everybody should buy a house. There are a lot of reasons to not buy a house. Of course, the folks that would be pushed into the sub-prime market should stop thinking that buying a house will magically solve all their problems and just not buy a house at this time. Some big cities are terrible markets for buying and are better suited to renting. We lived (and rented) in Chicago for a while and with housing prices that expensive, we would've been long-term renters had we stayed. If you have more than the usual instability with your jobs, don't buy a house! And by that, I don't just mean the always-present danger of losing a good job, but also the possibility that you may need to change jobs or job markets soon, or that your employer may be one of those that likes to move people around. Better to pack up and move an apartment than a whole house, trust me. Don't buy a house just because someone told you it's a waste of money to rent, even if that person is your dad.

Don't buy just because you want the freedom to paint things any color you want or to knock out walls and add on. Condo boards and housing covenants will have something to say about that. If you are very young and fresh-out of something--high school, college, the Navy, whatever--think about it long and hard before you make such a permanent decision. You may be thinking that you can just sell if you ever need or desire to move, but it is hard to unload a house. And it is even harder to unload a foreclosure from your permanent record. If you are not rock-solid sure that you are in a place you want to stay, just keep renting.

So, you've weighed all the options and you still want to buy. Your credit is good and you know better than to fall for that beguiling ARM. You are all set, now what? How do you save money while buying a house?

Rule number one: don't buy too much house. If it's just you, do you really need a 3-bedroom, 2 bath single-family home or would a small condo be a better fit? If it's just the two of you, or even just the four of you, do you really need a McMansion? Or are you just trying to show off? Exactly how many extra rooms does each member of the family need? A larger home is going to cost more to run than a smaller home. There will be larger heating and electric bills, possibly even larger water bills. And then there are the intangible costs. Who is going to do the cleaning? If you have stretched yourself to the breaking point to buy too large a house, it won't be hired help, you won't be able to afford them. Hope you like the smell of bleach. And what about the stress of trying to maintain a large house? I wouldn't want that. Mid-town has many post-war neighborhoods, with tiny little houses in which people raised whole passels of kids. Why do you need such cavernous spaces if you only plan on having one or two kids, or maybe none at all? Start by questioning these motivations.

Rule number two: don't get fooled by the "houses cost less out here" illusion. With gas prices this high, anything you may save on housing and more will go right into the gas tank every time you drive to work or to the closest real grocery store, which isn't all that close. And long commutes take a very real toll on your personal relationships.

Rule number three: don't spend extra money to move into a small, "safe" town or suburb with "good" schools. Mayberry never existed and small towns and suburbs are no safer per capita than most city neighborhoods. And by the way, the elementary school that is close enough for us to walk to? It got the state's highest rating for elementary schools.

Rule number three: if a particular neighborhood that you like is kind of pricey, cross the closest major street and check out the adjacent neighborhoods. They may be just as charming at a lower cost.

Rule number four: wait. Just wait out this housing-bubble-burst. At the end of it, housing prices will be something closer to reasonable in relation to wages. But you may be thinking about interest rates, what if they go up? Trust me, a low interest rate isn't going to help you pay the mortgage on a house that you can't afford. Or just wait until you are at a better spot in your life, because being shackled to a house payment isn't going to help if you aren't there yet.

Rule number five: buy an existing house in an established neighborhood. It is no secret that I don't care for new houses. I prefer a house with some love behind it, some history in it, and even a ghost or two. My favorite neighborhoods are fifty to a hundred years old, with interesting architecture and mature, graceful trees. I hate the faux character that is being built into new houses. Irish Provencial? Really? In Tulsa? Come on, you may like pretending you're in County Cork while you're standing in front of your cultured-stone fireplace, but leave your gated community and drive west, what will you see? The grand, sweeping prairies of central Oklahoma. Drive a little way east and what will you see? The green, rolling hills and rivers and lakes of northeastern Oklahoma. Because you. Are. Still. In. Oklahoma. And don't ever fool yourself into thinking that you are "having a house built" just because the builder lets you pick out the carpet and paint colors. If you are ever at the point where you can hire an architect and a private contractor and have a house designed and built for you then you do not need my money-saving tips.

I will continue to have posts on what the House does to save money on various things and how you can, too. I'll even warn against some of the mistakes I've made so you can avoid them. And be prepared for stories about my Gammie, who grew up in the Great Depression. She could really stretch a dollar! And if you have any tips and tricks that you'd like to share, speak up! We'd all like to hear them!

Sources:

http://www.census.gov/hhes/www/income/histinc/p05ar.html

http://www.census.gov/const/pricerega.pdf

http://www.census.gov/hhes/www/housing/census/historic/values.html