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Are Mortgages On The Way Out? - OurBroker : OurBroker

Are Mortgages On The Way Out?

houses and mortgagesWriting about mortgages and tiny houses, futurist Thomas Frey explains that “one of the biggest boat anchors for our lives tends to be our home and the gigantic home mortgage that comes with it. We sacrifice much for the sake of paying our mortgage.” (See: Why the Tiny Home Movement May Not Be So Tiny)

Frey’s commentary is exceptional, something which needs to be widely read. That said, I suspect the real problem he’s describing is not a joyous pilgrimage to homes with fewer than 200 square feet but rather an attempt to cope with a shrinking economy.

Mortgages and Economics

Frey says we should think of the trend toward tiny houses “as an obvious backlash to the banking, mortgage, and credit card industry. It’s also a backlash to glutinous consumption, poor job opportunities, and young people feeling betrayed by older generations.”

“The big thing this trend offers is freedom,” he argues, “and that’s not easy to quantify. It’s not just an efficient lifestyle, but a culture, a door-opener, a character-builder, and untethered nobility all rolled into one.”

Let me offer a different view: There is no backlash. Instead, we live in a contracting economy, one where there are fewer jobs, where the balance between workers and owners has largely been lost, and where the jobs that remain too often lead to static careers with little opportunity for advancement or personal satisfaction.

People are not choosing tiny homes because they love the joy of a 150-square-foot manor; instead they’re forced into smaller housing because the astonishing range of economic options available in the US after World War II are drying up. The new goal is not “freedom” it is instead survival in an economy which increasingly offers fewer opportunities. Little wonder that jobs — or the lack thereof — are now regarded as the biggest “problem” in America according to Gallup.

For instance, we are now debating whether to raise the minimum wage to $10.10 an hour. This means — if passed — that a full-time employee could make $21,000 a year (40 hours per week x 52 = 2080 hours per year. 2,080 hours x $10.10 = $21,008). A family of two might earn $42,000 a year.

How many households with at least two people can live well on $42,000 a year? And what if there are children in the household?

According to the Census Bureau the median household income in 2012 was $51,017. That’s up a whooping $17 from 2011. More importantly, the wages earned in 2012 are typically 9 percent lower than the same household earned in 1999. Is it any wonder that homeownership levels peaked in 2005? Or that student debt tops $1 trillion?

The reason more and more people now “want” tiny houses is not because such living spaces are wondrously desirable or somehow represent a cosmic notion of freedom, but because the American economy no longer produces the jobs, financial stability or opportunities for advancement enjoyed by our parents and grandparents.

Mortgages and Home Size

Frey says home size no longer bears any relationship to need, an issue identified in this space years ago. “In 1900,” he says, “the average house in the U.S. was a mere 700 sq. ft. with an average of 4.6 people living inside. A hundred years later, the average home had mushroomed to 2,500 sq. ft. with only 2.5 residents.”

In other words, one reason mortgages are so large is that big debt is necessary to finance big homes. One solution to this problem — societal norms be damned — is to buy a smaller, more affordable house. Frey points to tiny houses as an option. I don’t see that as a choice for most people but I remember that the home in which I was raised had three bedrooms and 1.5 baths, a home in which space was just not a problem.

Frey says we are seeing “a new breed of tiny homes that are comfortable, efficient, often portable, and most important, mortgage free. They represent freedom, freedom from debt, freedom from conspicuous consumption, and freedom to live a life of passion.”

Of course, another option is to rent. Savvy people who rent are trading tax breaks for the ability to move with ease and avoid declining home values, should they come. Home prices, it should be said, are now 8.9 percent lower at this moment then they were in 2007.

While I don’t believe that homes which are smaller than a house-trailer make sense for most people, especially those with children, tiny homes at least conform to Miller’s First Law of Real Estate: Never buy a house you don’t want to clean.

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  1. There are a whole bunch of tiny house designs at http://socialtiny.com/#!all

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