OPINION:
Buying a house today is hard, particularly for younger people. I should know. I have children in their early 30s, and they and their friends are all trying to make it happen.
Supply is low. It’s also pretty tough to persuade someone with a 2% mortgage to trade it for a new mortgage that comes with a rate as much as three times higher. What makes it even tougher is when you look at history: In 1984, when the median household annual income was about $60,000, the average price of a house nationally was about $95,000. True, incomes have increased by 40% to about $84,000 annually, but home prices are now averaging $512,000 across the country, a fivefold jump.
The reality is that homes are still affordable if you want one. Sure, you can ask your parents for a little help on the down payment or wait for that multitrillion-dollar transfer of wealth that experts keep promising once the boomers start dying off. These aren’t always great strategies (unless you have a lot of patience, very sick grandparents or a very good relationship with Mom and Dad).
The best strategy to own a home? Take it from this certified public accountant and small-business owner: You have to make choices. To buy a $500,000 home, assuming you can put 20% down, at current interest rates, you’ll have an annual mortgage of about $30,000. If you’re in that demographic and you really want that house, you’ll have to ask yourself some tough questions.
For example, the average cost of a wedding is more than $36,000. Does it make sense to spend that kind of money, or would it make better sense to take it and put it down on a house?
Maybe it’s time to have a few tough conversations with your besties. The average bridesmaid is asked to cough up $1,500 to $2,500 to participate in a friend’s local wedding. If it’s a “destination” affair, it can be as much as $3,000 to $5,000. That’s a pretty high price to pay for being a good friend. Saying no would go a long way toward that mortgage payment.
Today, people spend an average of $6 to $8 every time they visit a Starbucks, which for many is almost every day. That amounts to about $1,500 per year. What about eating out? Before the 1980s, people didn’t do that nearly as much. One survey found that people spend, on average, about $166 every month on dining out, or $4,000 per year. According to one report, the average American spends about $583 per year on alcohol, or about $1,200 a couple. That’s a third of a monthly mortgage payment.
If we decide to eat in, many of us go to Whole Foods, where as much as 80% of the products are more expensive than they are at cheaper grocery stores. We spend $500 to $700 per year on gym memberships, even though we can just as easily work out at home or go for a run. Our dogs cost us $2,500 per year. According to one report, a whopping 42% of men buy three or more pairs of shoes every year, compared with 39% of women. Do we need all these shoes?
Living your best life means going on vacation. If you are a couple planning to visit Disney (I know more than a few who enjoy doing this, or something similar, annually), you can spend $4,000 to $8,000. If you want to spend five days in Las Vegas, that will set you back about $4,000. No surprise; it’s even more expensive to vacation overseas.
I’m not any better. I’m to blame for being duped into spending so much on higher education. Anyone can attend a local community college for $4,000 per year for two years and then transfer to their dream college, saving two years of exorbitant tuition and room and board, which can cost $63,000 per year. (State schools are half the price.) We don’t because, God forbid, we tell our friends and neighbors that we (or our children) are going to a (gasp!) community college.
To pay for all this, people are running up credit card balances and incurring huge interest charges. In 2012, credit card debt was about $571 billion. Now it’s $940 billion, a 65% increase. In 2012, 8.8% of people were paying the minimum balance due on these cards. Today, that number has increased to close to 11%.
When economists compare incomes and housing values for generations going back to the 1950s, they usually miss one big thing: Today’s younger generations are living their best life, and they are spending on things their grandparents could only dream about.
Good for them! Life is short. By all means, buy shoes. Eat out. Travel. Drink. Live.
But don’t complain about not being able to afford a house. If you add up just the amount of money spent on the items above, many people would be able to afford that mortgage. They’re not wrong, and they’re not right. They’re just making choices.
• Gene Marks, CPA, runs The Marks Group PC, a financial and technology consulting firm near Philadelphia.
Please read our comment policy before commenting.