4/23/13
My generation is known perhaps most saliently for one thing…spending money, and lots of it, on things we don’t need. One of the most grotesque manifestations of this destructive tendency is the money people have put into their homes. We have bought, and built, in many, if not most cases, far more house than we need. Why? Who knows? But one suspects that a gaudy, over the top, tasteless gargantuan home is one easy and obvious way to display one’s wealth, and the need to display one’s wealth seems to be an ever present, and ever growing, need among the vast legions of terminally insecure that comprise huge swaths of my generation, but I digress.
We hear constantly about how my generation (Surprise!) is not at all prepared for retirement. The typical high (and middle and low) income member of the boomer generation has spent his or her last nickel and then some. While many have 401Ks, IRAs, or similar retirement plans, those plans are woefully underfunded when one considers the cost of just a decent retirement, let alone continuing to live the profligate lifestyles that seemingly have become the object of existence for so many of my generational colleagues. Increasing one’s income, by whatever means, has proven to be no solution to the problem; new income is spent even faster than it is earned as what once were luxuries suddenly become necessities and people somehow “just can’t make ends meet,” even at higher income levels. Those payments on the Lexus lease are a bear but, again, I digress.
All this talk about “deleveraging” and “fortifying of balance sheets” has some, but not much, validity; our saving rates rate has improved…from its negative pre-recession levels to a whopping 2.6%. This compares to our 6% plus savings rates throughout the ‘80s, our 7%-10% rates in the decades following World War II, and the current 10% and 25% savings rates in the Eurozone and China respectively. Our debt to after tax income ratio is down to around 106% from its peak of 130% in the third quarter of 2007, but nowhere near as low as the 85% average for the decade of the ‘90s. Want to feel even worse? That ratio was 69% in 1985 and 36% in 1952. The share of income used to service debt has fallen, from its peak of 14% in the third quarter of 2007 to about 10% now, but much of that improvement comes from the Fed engineered artificially low rates, or what yours truly likes to call Ben Bernanke’s war on the elderly.
So my generation lives in too much house, has too much debt, and too little saved for retirement. So when (if) my faux wealthy generation retires, what will it do? It has to find some place to save if it hopes to avoid the ignominy of having to adopt a more rational approach to life. One obvious place to cut expenses is the home. Homes, especially homes built as gaudy monuments to one’s self, are expensive not only to buy but also to maintain. Property taxes are outrageous. Upkeep is high. And the new kitchen every five years or so (“I just couldn’t LIVE in the old one!” (especially when the neighbors got a new kitchen)) gets really expensive.
Simply put, my profligate generation, due to its overspending and under saving, will soon find itself in the position of not being able to afford the McMansions that seemed such a necessity only a few years ago. Assuming that members of my generation are capable, collectively, of making a wise financial decision, which admittedly is a brave assumption, a logical thing to do would be to sell the big house and get out from under the expenses such an extravagance entails. Even if the sellers don’t clear anything from the sale, they would have saved themselves a ton going forward. And, in at least some cases, they can do so while saving the all important face, to wit “We loved our old house, and could certainly afford it, but, with the kids gone, it was time to downsize.” Their equally in the hole, backs to the wall friends will believe this load of baloney because, after all, they will be doing the same thing themselves and a collective lie starts to take on characteristics of the truth.
The forced sale by the boomer generation of the houses they never needed and could never really afford could thus potentially create a huge overhang of houses on the market. On the other hand, the federal government could get involved and bail these profligates out by sticking those who save with the bill, much as it is doing now with HARP programs, artificially low rates, and the like. Such a move might save housing, at least temporarily, but would not only offend any decent notion of fairness but also ultimately further devastate the economy by further punishing saving to reward spending…all in the interest of “solving” a problem born of too little saving and too much spending.
