Virtually anybody could live on a single income if they did with the same volume of material possessions as in the 60's, including house size
these researchers spent an entire book refuting that argument. i thought it was a lousy book in general (my review is the one titled "Slipshod tunnelvision"), but they do lay a number of your arguments to waste.
amazon.com
[my review below]
Slipshod tunnelvision, May 19, 2004
Reviewer: A reader
Everything looks like nails to a man with a hammer. To this mother/daughter duo, everything's about getting your kids into good schools. They hilariously interpret the entire US housing bubble through the lens of suburban flight in search of better schooling.
Their basic thesis runs like this:
1. The middle class is in financial trouble.
2. The biggest rise in middle class spending is housing.
3. Middle class people care about good education for their kids.
4. Therefore, they have started a "bidding war" for good-school neighborhoods, and have inadvertently priced housing into the stratosphere.
Their solution to this problem is to implement a voucher system which would surely cause a housing crash, and ironically bankrupt even more of the poor middle class homeowners they pretend to be championing.
But education is not very convincing as the dominant factor leading to our housing bubble. This bubble is more easily understood in terms of a combination of historically low interest rates, combined with a relaxation of lending standards that has increased homeownership to an all-time high. Despite this, homeowners' equity as a percentage of market value stands at an all time low. If you back out the 39% of homeowners who own their houses outright, the remaining 61% have average equity of just 25%. Thus a decline in housing just to the price levels of 2000 would put the majority of homeowners at an average of zero to negative equity.
How did this happen? Thanks to loose standards which permit zero downpayments, interest-only loans, ability to withold proof of income, an all-time high percentage of ARM borrowers, and so on.
Things like 20% downpayments and a proof-of-income requirement narrow the competition for housing and keep prices lower. The opposite, historically unprecendented trend seen in recent years naturally increases the pool of potential buyers and pushes up prices. Now there are people buying their first 500K "starter home" with zero-down interest-only ARMs. This is called "affordability", but the debt grows.
The inevitable results are HIGH "homeownership", LOW equity, and HIGH prices. Moreoever, as prices have risen year after year in many areas, the cycle becomes self-feeding as desperate buyers increasingly "stretch" (just as they did in the stock market in 1999 and 2000) just to get a house. They think prices can only go up or they will never be able to buy a house.
It's quite sad, really, and like all bubbles I expect it will end in a crash which will bankrupt many. So this is the easiest explanation for the precarious financial state of the middle class. The authors' incessant focus on the "heroic" efforts of mom and (that lesser animal) pop to provide a good educational environment for their kids is just another apology for the housing bubble when you get down to it.
I think a better book for most middle class people wanting to avoid bankruptcy is "The Coming Crash in the Housing Market: 10 Things You Can Do Now to Protect Your Most Valuable Investment". |
