On home-buying

Last updated on: March 27, 2014 at 10:29 pm by Jane the Actuary

On home-buying 2014-03-27T22:29:00-06:00 Jane the Actuary

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So Megan McArdle is writing about homebuying today, and I thought I’d just comment there referencing something I wrote about the topic — but, it seems, I never actually wrote about this! The closest was an article on Germany and the baby bust there, in which I observed that the very conditions that make Germany a progressive’s dream (dense housing, high mass transit use), are part of what produces such a low birth rate, as it’s just awfully inconvenient to have kids, or more than one or, at most, two, if you live in a two-bedroom apartment, and take mass transit everywhere, or, if not, have a tiny car.

Her main point is to be very careful about how much you spend on a house, because a mortgage-payment is a big, big fixed cost that doesn’t give you any flexibility for job loss or job changes. Even buying an expensive house for the proverbial good school district can be a bad choice, if that means that you’re surrounded by families with kids in travel sports, driving BMWs, and ultimately causing heartache, or at least unhappiness, if you can’t keep up with the neighbors financially.

Our experience was that, as Megan did, we bought a much smaller home than we could qualify for, based on our income. Actually, she cites 20% of take-home pay as the figure that they determined they could afford; we never did this math, and I don’t remember what our first mortgage worked out to be. (Besides, I wasn’t working at the time that we made the offer; I started my job right after we got the offer accepted, so we qualified only on my husband’s income.) But in any event it required a major remodel — we spent a long time ripping off as many as four layers of wallpaper (true wallpaper, on top of plaster walls), and later remodeled the kitchen, added a garage door opener, air conditioning, ripped the massively overgrown and rather ugly ivy off, etc.

Then, five years and two kids later, we bought our “move up” house, a larger, but still comparatively modest home. Happily, this was in 2003, before the market got really overheated. It’s hard to say whether we’ve lost money in terms of the house’s value, because we put an addition on the house.

We’ve also made a fair number of extra payments along the way, and have refinanced the house for an unbelievably small interest rate.

But here’s the thing: we’ve made some definite decisions, chief among them the decision to buy a smaller house than we otherwise would have, if we had chosen to live in a further out suburb (and the office is in the suburbs, so it’s not an issue of the commute) rather than the closer-in suburb where we do live. We also intentionally live close to the little “downtown” are, which isn’t much, but it’s nice to walk into town for a treat and to be close to the commuter train; and, in the other direction, we’re near a public pool and park.

But we haven’t had to make major sacrifices.

And the more difficult decisions are made by people who aren’t deciding whether to buy in a more or less prestigious neighborhood, or a smaller or larger home, but by people who have to stretch their budget just to be able to afford a single family home in the first place, or, at any rate, a single-family home in a not-so-crime-ridden neighborhood, in a not-so-corrupt town (because, per my prior post, a house in Detroit is there for the taking).

And that’s where the mindset in countries such as Germany works a lot better — it’s simply not a core need families have to buy a single family house. It’s perfectly normal for families to live in apartments, an ordinariness that only exists here in a few places (New York is the only one I know of, actually). Imagine if it wasn’t an embarassment, a failure for a middle-class family to live in a condo — which would require that condos be kid-friendly rather than targeted at young adults and empty-nesters, with shared playground areas. Surely then this cliff of stretching the budget and putting family finances at risk wouldn’t such a problem?

But our infrastructure isn’t set up that way, and, as far as suburban new construction goes, our zoning requirements insist that families belong in single-family houses. Are families trapped in a world of compulsory single-family-home living?

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