The "housing affordability crisis" is more a crisis of wasteful spending

According to Yahoo! News, the housing affordability crisis is spreading.

What began on the coasts, in areas like New York and San Francisco, is now radiating into the nation’s heartland, as well as to cities from Las Vegas to Charleston, South Carolina. Entry-level buyers are scrambling to purchase homes that are in short supply, sending values soaring.

Expectations that the Federal Reserve will reduce interest rates this week will do little to change the sober reality: For many, prices have risen much faster than incomes, pushing homeownership out of reach for a new generation of hopeful buyers. That’s cooling the market, with the 2019 spring season shaping up as the slowest for sales in five years, according to CoreLogic Inc.

“All signs point to a housing market that should be doing really well and it’s not,” said Danielle Hale, chief economist for Realtor.com. “The No. 1 constraint, despite low mortgage rates, is that people can’t find housing that they feel is affordable.”

Many buyers in expensive West Coast cities have already retreated after a surge in prices squeezed them out. But in other areas, demand is still robust, fueled by a strong economy and this year’s rapid decline in borrowing costs. There’s just too little to buy, and too much competition.

There's more at the link.

There are undoubtedly systemic issues - the buying up of lower-cost housing stock by major investors;  the lack of new-build affordable housing, due to builders concentrating on the mid- to upper levels of the market;  the ongoing squeeze on salaries and wages, stemming from the 2007-08 financial crisis;  and so on.  However, I strongly suspect that one of the biggest reasons for the problem is that people simply waste an enormous amount of money on frills, fripperies and unnecessary luxuries.

Let me use my parents, and then my wife and myself, as examples.  In 1960 my parents bought a 70-year-old house, two-story, with 17 rooms.  The only reason they could afford it (at a price of 6,000 UK pounds in those days) was that it was in very poor condition internally, and therefore sold for well under half what it would have fetched in good condition.  Over the next decade, my father renovated and restored the place.  He invested the equivalent of another 6,000 pounds, plus hour upon hour of his time in "sweat equity".  (I can remember "helping" with the wallpaper . . . although I suspect my parents re-did the bits I helped with, after I'd fallen asleep!)  They paid for it all by cutting back in other areas.  We kids had to play in the garden rather than go out for entertainment, and do without the plethora of toys that others had;  but I don't think we suffered from it at all.  When my parents sold the house in the late 1970's, it fetched about seven times more than they'd paid for it.

When Miss D. and I married, we brought some large medical bills and other debts into the marriage with us.  We were determined to pay them off as fast as possible, and position ourselves to buy a home.  We did so by simple, yet effective measures like not having any pay TV service at all;  buying clothes from thrift stores, or on sale at Walmart;  buying older used cars for cash, and keeping them running as long as possible, rather than paying interest on a car note;  and eating simply, by shopping at Aldi and other low-priced food stores.  We were still able to enjoy the occasional meal out, and now and again we'd raid delis and foreign food stores to buy a few luxuries, so we didn't deprive ourselves unduly.  By the end of six years, we'd paid off every penny we owed between us, and accumulated enough savings to put down a 20% deposit on our home in Texas, take out a 15-year housing note for the balance, and pay the moving costs to get here.  (Buying a house in an area where it was affordable also helped a lot!)

When I look at the spending patterns of the average family today, I shake my head in disbelief.  Some spend over $100 a month on TV and movie subscription services;  $100 or more (sometimes a lot more) a week on take-out food or dining out;  kids' activities like sport, gym, dance, etc.;  annual vacations that can easily cost a family $500 per day or more;  and so on.  When you add up the total amount of those expenditures, it can be well over $1,000 per month without even trying . . . but that's money spent on transient goods, with no lasting value.  I won't say it's always wasted, but much of it is certainly not essential.  (For example, "the average 10-year-old owns 238 toys but plays with just 12 daily".  See other statistics about the average family's possessions at that link, too.  They're mind-boggling!)

I think, if most families cut back on those expenditures and did more as a family to entertain themselves, they'd save a bundle.  Yes, that would probably mean that one family member would have to work part-time (or, in a big family, not at all) to keep an eye on everyone;  but our ancestors did so without thinking twice.  Some will object that families can't live on a single income today, and that's probably valid - if they want to maintain a two-income standard of living.  I know some families where they've made a conscious decision to cut their coat according to their cloth, and live much more cheaply and simply.  They seem perfectly happy to me - and they avoid the trap of drowning in "stuff".

If a lot of families, particularly couples with no or few children, would try that for a couple of years, they could pay off a lot of their debt and/or accumulate enough to put down as a deposit on a home.  Right now, they're trying to roll over credit card debt, buy all sorts of things they don't really need, and wondering how to afford a house on top of all that.  The simple answer is, they probably can't!

I highly recommend Dave Ramsay's financial courses.  They teach a lot of the basics that many people today just don't seem to get from their parents or school.  Applying those lessons can make a huge difference.

Peter