A Basic Necessity – FINAL

Almost all of Americans were in either of two groups when the Great Housing Disaster of the early 2020’s hit. For the most part, neither group realized there was a housing disaster at all. Group One consisted of the people who already owned a house, and Group Two were the people who could not afford a house to begin with.

There was also a Group Three, a very rare species of prospective first-time homeowners who were equity poor, debt-free, and cash rich – but who were still unwilling to bet their financial futures on whether this economic insanity was normal.

And how could it be normal? Housing in America had never been more expensive, in either real or relative terms. The median house price in America had more than doubled since the great recession, increasing fifty percent in the COVID years alone. For sure, nobody’s household income had come close to doubling during this time. Forget eight or ten percent inflation on a loaf of bread. What about one hundred percent inflation on the price of a house, the most expensive thing most people would ever buy? This unprecedented economic paradigm shift was one of the most impactful slow-moving events of the twenty-first century, but astonishingly it didn’t get much play in mainstream news.

In A Basic Necessity – Part 4, I overcame my self-pity, shock and despair over this housing disaster and its terrible timing (what were the odds this would occur at precisely the time I had planned to buy a house, after having saved for thirteen years?) and committed to buy a house that was suitable for me and my family. There was considerable negative motivation involved. Our so-called temporary housing situation was way past its expiration date and it was having a negative affect my mental health. We needed to escape our tiny duplex on the shabby, low-income street with its depressing stretch of junk-covered lawns, shirtless chain-smokers, spilled garbage, dog poop, and cars on blocks.

Every weekday morning I surveyed this street as I walked the kids to school. I was no safety freak, but there were very real safety concerns around our house. On a crime map it wasn’t quite red, but maybe orange or yellow, depending on the week. Mild safety concerns aside, I walked the kids to school every weekday morning to get some fresh air, stretch my legs, and clear my mind before the work day began. Most of these morning walks were in very frosty weather, with snow and ice everywhere, before the sun appeared over the mountains to give the valley a little warmth. We had record snowfall in 2023.

At the kids’ school I’d see them off, and then walk back up the hill to the house, reciting my goals like a mantra, the first of which was “I help elevate the lives of my family by doing great things, including (but not limited to) a major housing upgrade this year”. This goal seemed impossible, but I forced myself to repeat it through clenched teeth, every single day. This went on for most of the school year. At some point toward the end of winter we took action. The wife and I started looking at houses for sale. Out of maybe twenty houses, we saw three that we considered suitable for us.

The house search was depressing because:

  1. I still felt like I was nowhere, despite the mountains and outdoor lifestyle perks.
  2. The quality of houses in our neighborhood were not that great on average, as compared to anywhere we had ever lived.
  3. And houses were still selling for an insanely inflated price, as compared to just a few years before.

The same question churned through my mind for years: what was reality? The price of housing had never gone up so much and so fast. I didn’t mind paying whatever was actual value of a house, even if it was near a million dollars on average in our area, but I did mind paying that kind of money for an otherwise very average house.

Supply was still a major problem that drove prices impossibly higher. The homeowners in Group One were not selling because nobody could afford to move (and thereby double their mortgage payment).

As May rolled around we were still looking at houses, but our enthusiasm had slacked. We had recently found two houses we liked, but couldn’t get our foot in the door. One of them had an “unlimited” cash offer. It was reminiscent of the FOMO frenzy of the previous two years. My wife and kids would be in Japan for most of the summer, departing the first week of June. I was planning on joining them there for most of the month of July. We had more or less decided to suspend our housing search until autumn, but there was one more house.

I didn’t want to see it. I was too defeated, depressed. My wife talked me into it. She loved this house. The place was fifty years old, but very well upgraded and maintained. It checked off all the boxes for us, and other boxes we hadn’t imagined. If rented, this place would go for at least $3,500 per month. If we took out a mortgage, we would’ve paid hundreds of thousands in interest over the full term of the loan. In my mind there was no way we’d get this house.

But we did. We were fortunate to be in Group Three. Ours was not the highest offer, but it was cash. Being cash buyers was like traversing this economic hellscape with a special immunity card or an amulet of protection. Credit scores and interest rates were irrelevant. We had lived a frugal life for decades, never accumulating a single penny of debt.

So we succeeded. All those months of reciting my goal through clenched teeth in frigid weather had finally paid off. Three years after having made the move from Japan to America, we were finally “home”.

Our problem might have been resolved; HOWEVER, one thing had bothered me during this whole endeavor: how would our children and future generations ever be able to buy a house? Was this a permanent paradigm shift that signaled the end of traditional quality of life in America? My family and I were fortunate to have had financial liquidity and leverage that were unheard of for most people, and it still seemed miraculous that even we were able to overcome this economic disaster. Would future generations become permanent renters, with a small minority of landlords and investors rising to the top? Was the single-family home a thing of the past?


A Basic Necessity – Part 4

Why did we return to America after ten years in Japan? Our primary goal was to expose our kids to American culture, to give them alternatives to the Japanese education system’s conveyor belt to forty years of corporate servitude. Next, we wanted to be close to my family. That goal was quickly satisfied, and didn’t seem so important now. We also wanted to enjoy some of the unique things America had to offer (for example, National Parks), and to give me the opportunity to work from home. Most of all, we craved a sense of permanency (as much as anything could be permanent in life), after having rented and moved from place to place around Japan’s Shonan Coast for ten years. We wanted a home of our own.

But the economy wasn’t cooperating. For the two years since returning from Japan, my mind was imprisoned in a hellish vortex of agony, depression, and rage over the insane rise of housing costs in America that just happened to coincide with our return.

In A Basic Necessity – Part 1, I established a bit of context by looking at the house-price-to-household-income ratio over time, which rose from about 2:1 in 1970 to 10:1 in 2020 (in our area).

In A Basic Necessity – Part 2, I cursed our bad luck at returning to America at the peak of such an unprecedented rise in housing costs, and tracked housing prices as they shot up another 50% while interest rates doubled – in a span of two years. I concluded that paying off a house was an impossible long-term goal for almost all would-be, first-time home-buyers (which included us, as we hadn’t owned residential real estate in America for seven years or more).

In A Basic Necessity – Part 3, I took a look at the American debt culture that made this shocking phenomenon invisible to existing home-owners (low interest meant low monthly payments), and I did some math to conclude that the throw-away money on rent in our area was actually less than the throw-away money involved in buying a house, even considering the rise in equity over time.

Fast-forwarding to the present, I needed to escape this spinning vortex of self-inflicted mental pain, and settle our housing situation once and for all. For two years we had been renting a small duplex on a shabby, low-income street – a depressing stretch of junk-covered lawns, lowlifes, and broken-down cars. Our boys were growing fast, and this place felt smaller with every passing month. I cursed every time I prepared food in our tiny, one-person kitchen. Our living conditions were a significant downgrade compared to the places we had lived in Japan, or compared to anywhere I had lived since college.

In this latest installment of A Basic Necessity, I would commit to overcoming our particular housing problem and help my family realize their dreams in the upcoming year.

The first step to solving any problem was defining it. What was the problem we faced, exactly? Or, to be more precise, how did I perceive the problem? Were things really as bad as they seemed?

When we first moved here at the end of 2020 the problem was low supply, extreme demand. Competition among buyers was like the opening round of Hunger Games, with people tearing each other’s eyes out in terrible death matches that would award a blood-soaked winner the privilege of paying 20% or more above an already super-inflated price (plus sexual favors for life to the seller, and the sacrifice of a child or two). By the summer of 2021 this FOMO frenzy had reached such levels of insanity that I abandoned any hope of finding us a suitable house.

Today, the first day of 2023, the seller’s market did not exist, thanks to high interest rates. In the last half of 2022, housing sales plummeted and house prices fell a few percentage points month over month. We were potential cash buyers, so high interest rates gave us an edge.

On the other hand, a buyer’s market did not exist either, at least not yet. Everyone was staying put. Around two-thirds of so-called homeowners in America were not owners in the true sense of the word. They paid rent to a bank in the form of a mortgage, and very few of these folks now had the financial chops to give up their low-interest loans and buy a new house – especially in a year when everything screamed “recession,” mass-layoffs, and foreclosures further down the road.

There were two other problems remaining now that the prices had leveled off. Supply was still an issue, but this situation would only get better next year.

Our other remaining problem was the risk of putting a massive stack of cash down on a house, when every economic indicator suggested that there could be a crash. This was the same reason the loathsome, big-scale investors had backed out of the market. We’d only be in America for another decade or so, which wasn’t long enough to recoup losses on a massive drop in value of a house. This problem had buried me in doubt and despair for a year or more.

But was my perception correct? Were things as hopeless as they had seemed? The reality was: if the housing market did crash after we bought a house, it wouldn’t break us. And there was no scenario in which we would lose all our money on a house. Houses were a basic necessity. Everyone needed a place to live.

Over the holidays I spoke to a few people who gently suggested that I let go of my anger over this situation, accept the new reality, and get a house.

Things might have been hopeless for future first-time, would-be home-buyers, but it was time for me to recognize that we weren’t in this group. I may have felt like the poorest person in the world in our current living conditions. I may have surrendered my lucrative job in Japan and accepted a fifty percent pay cut (as housing prices rose fifty percent). But recently I was reminded that we had more options, at least compared to 90% of the U.S.

Over the holidays a friend sent me an article on “signs of financial fitness”. It was astonishing to see such pathetic standards for “financial fitness,” and to remember how poor America really was. The debt culture had disguised the poverty of the masses, with the mentality of “how much debt can I sustain?” instead of “should I maintain debt at all?”

In sharp contrast to almost all Americans, we had always maintained zero debt, and we lived far below our means. We were sitting on a mountain of slowly-deflating U.S. dollars, just begging to be spent. Losing US$200K in a housing crash would hurt, but it would not be a life-changing event.

With that mental barrier out of the way, what were our options now? We wanted a home of our own, but what did that mean? Or, as my wife liked to ask, what was the plan?

We had checked off the box of “being close to family,” and it didn’t seem such a high priority now. My mom had originally planned to move to SLC, but then changed her mind. My brother and his family lived nearby, but they’d likely move away when their daughter graduated high school in a couple of years. Salt Lake had a lot to offer, but there was nothing keeping us here. We could go anywhere that offered a better quality of life.

In the coming year, flexibility was our friend. We would monitor the housing market in our current community, while evaluating the possibility of moving to another state. We’d spend another summer in Japan, with a loose goal of moving to a new house in the fall. It could happen before then if conditions were right.

Most of all, I vowed to maintain optimism about housing. The FOMO frenzy was over. Economic disaster for most would only mean opportunity for us. In any event, 2023 promised to be a much better year.


A Basic Necessity – Part 3

“What can we buy?” This was what most prospective home-buyers asked. It was the wrong question. The right question to ask was “what should we buy?” Or, “should we buy at all?”

For us it didn’t make any sense to buy, even though we had zero debt, enough cash, and liquid assets. “Cash” sounded great in years when the markets were down, but it was the worst possible situation during times of super-inflation and every equity market at record highs.

So we needed a place to put our cash to protect it from inflation. Was an expensive house the right place? My instinct told me no, at least for where we had chosen to live.

The featured image showed Federal Reserve Economic Data (FRED) on the median sale price of a house over time, as of 2020. It would shoot up another 25% to around US$600K by the end of 2021. This was the median price for all Salt Lake City. In communities where people actually wanted to live, it was closer to US$800K.

So was it cheaper to dump our cash into an eight hundred thousand dollar house, or was it cheaper to rent a house worth that much? As it would happen, my brother’s friend owned a house valued at US$800K around the corner from us, and he wanted us to rent it. We were probably in the top 5% of most reliable renters in America, but when I spoke to the landlord it felt less like a renters’ market and more like a prospective tenant’s market.

They wanted US$3000 per month for the place, and they were giving us a discount over what they’d charge strangers. We were a single income household (sacrificing a second income for parental childcare), so this rent would put us in the “distressed” housing category, paying more than 50% of our pre-tax income on a place to live. However, it was nothing unusual around here and it kept us in the neighborhood where the kids went to school and our friends lived. Plus, we had cash that was burning up due to inflation, and we had to spend it somewhere. Was it better to pay a landlord’s mortgage, or our own?

Rent versus buy on a US$800K house, monthly expense.

Rent: $3K. This included the water bill.

Buy: there were a couple ways to go here. Buy it all or pay the minimum. For now, I’d go with the minimum, 20% down on a fifteen-year mortgage, as we were not staying in the U.S. more than fifteen years.

20% of $800K was $160K down, so we’d take out a $640K loan. According to an amortization calculator I found online, this would be around $1800 interest per month, plus $2700 toward the principal. So, $4500 per month. (This payment alone was more than our total after-tax, after retirement investment, monthly income.)

$1800 interest per month was throw-away money. So was an estimated $500 per month maintenance, $500 per month property tax, and $100 per month property insurance.

Not to mention there would be at least $25K in closing fees, amounting to an extra $140 per month for FIFTEEN YEARS!

Total throw-away money to buy: $3040 per month.

Total throw-away money to rent: $3000 per month.

And these calculations assumed that housing prices would continue to go up forever, which seemed like an unsustainable economic situation.

It wasn’t very often that equity markets shot up 50% in two years. I was betting on a crash, and so was everyone else.

Everyone we knew who wasn’t a current home-owner was in the exact same situation. They preferred to rent over own. One family we knew finally gave up settling here permanently, and moved back to Japan. Some other friends of ours moved to rural Vermont. These was anecdotal examples, but a good sign of what was to come. Housing price had outpaced household income for decades, the gap between what people earned and the cost of living continuing to rise. In Salt Lake, it median home price to median household income was around 10:1.

It was no surprise to see American household debt was at an all-time high as of early 2022.

The last time household debt was this high was in 2007, and around that time I visited my dad in Las Vegas. He had lived there many years, and was looking for a house to buy. We went around with a realtor together, and she made a statement that would stick with me forever: “I don’t know how people are avoiding these prices. I guess they’ll just have to make more money. That’s how the economy works!”

I was no economist, but the real estate agent’s comment was jarring. Sure enough, a year later the housing market crashed through the floor nationwide. There would still be houses in Las Vegas underwater fourteen years later, worth less than the original price. The Las Vegas realtor was nice, but I would always remember her as one of the biggest idiots I had ever met.

In early 2022 the atmosphere in Salt Lake City felt the same.

We had done the math. It was still cheaper to rent, even considering skyrocketing rental rates. Why pay someone else’s mortgage when you could pay your own? Paying rent was throwing money away? These old adages no longer applied. So yeah, we were happy to pay someone else’s mortgage until the bottom fell out of the market, or for as long as it made sense.


A Basic Necessity – Part 2

Housing is not a right…

The other day I went to the local hardware store to buy a 1’ x 6’ board to make some shelving. At the register I was shocked to find this single plank of wood cost US$65. I took it back to the lumber section and asked them to cut it in half. Three feet would do. Back at the register, I remarked to the cashier, “Holy crap, wood is expensive! Good thing I’m not building a house.”

“You can thank the president for that, honey,” she replied.

At first I thought she meant the president of the hardware store company, but then realized she meant the President of the United States. For a moment I couldn’t even remember who the president was. Did it matter? I had lived overseas for a decade and had never given it a second thought.

I disregarded the cashier’s comment as typical American political polarity, but decided to research it when I got home.

As it turned out, the cashier lady was not incorrect. According to an article on NPR, the previous president had jacked up tariffs on Canadian lumber, America’s number one source of foreign wood, to about 9%; but the current president had double-downed on this move, raising the tax on Canadian wood to almost 20%. This gave the American lumber industry a virtual monopoly, so they could sell it at any price. And if an industry could sell something at any price, well, then things got expensive, and the hardware store could charge sixty-five freaking dollars for a single board of wood.

The NPR article related these facts in an apologetic kind of way, because, presumably, even to a news outlet that could be expected to support a Democratic administration this seemed insane.

We were in the middle of a full-blown housing affordability crisis in America. Housing prices in many American cities (including the one to which we had decided to move) had tripled in the past decade (TRIPLED!), mainly due to low supply, and supply would not increase if building costs were high.

The current level of housing inflation was unprecedented in all of American history. Was this really the best time to jack up tariffs on foreign lumber? The U.S. lumber industry must’ve had some damned good lobbyists, was all I could conclude.

The apologetic NPR article attempted to end on a positive note, stating that at least the current administration was pushing the multi-trillion-dollar “Build Back Better Plan,” whatever that was. How were they were going to build anything back better with lumber prices through the roof?

For me, this topic hit much deeper than the price of a single board of wood. I was on a twenty-seven-year employment streak. Every weekday for the past quarter century I had done the exact opposite of what I wanted to do. For ten years straight I had dragged my physical meat mass through a two-hour round-trip commute aboard the trains of Tokyo metro to serve my daily sentence as a wage slave. Every day for a decade I had grit my teeth, gazed down at the tracks as the train approached, understanding why some chose to end it all. But I got through it.

Two prevailing ideas had kept me off the tracks and repeating this routine for five hundred consecutive weeks: one, my extra “hardship” pay allowed my family to enjoy a unique life in one of the best communities in Japan; and two, I was saving enough to buy a house in America when we finally moved to the States.

Housing was a basic necessity, but it was not a right.

Still, I couldn’t help but feel I deserved the opportunity to buy a house for my family at a price that would not jeopardize our financial future. I was probably in the top one percentile of most financially responsible people in America, having maintained steady income for three decades and provided for my family without incurring a single penny of debt. Hadn’t I earned my way into decent housing at a fair price?

It was entirely possible that my sense of entitlement came from a financial worldview that was no longer the norm. In my world, debt was bad. In the real world, debt was good. Everyone was in debt. Low-interest debt allowed financially average people to “own” a big house. So what if the loan was eight times what your household made in a year, if monthly payments were low?

Even cold, hard math favored debt. In a lot of cases it was just cheaper to maintain massive debt than it was to pay off a house in cash. But life wasn’t all about math. Sometimes it was worth paying more to have the feeling of actually owning something (as opposed to claiming you “own” when you were really paying rent to a bank). Actual ownership also massively lowered monthly expenses, allowing for more financially flexibility and opportunity in life.

For a long time there was this old adage, probably started and propogated by real estate agents, that used to be true in most cases: renting was throwing money away. In early 2022, even with elevated rents, this was clearly no longer true.

I did the math on a few rental houses in our neighborhood, each listed at about US$800K, and determined the throw-away money in buying a house was actually more than the throw-away money of renting the house. There was the maintenance cost, the property tax, the insurance, and all interest stacked in the first decade of a thirty-year loan.

Not to mention that we were at the peak of a titanic housing bubble. It was one thing to buy now with the funny money of inflated housing equity on the sale of your old house, but we were basically first-time home-buyers again. A 20% drop in the housing market seemed an imminent (and perhaps conservative) occurance, which for us would mean kissing that cash down payment goodbye. That was the equivalent of a college education for one of our kids that would take a decade or more to recover. We may have had the money to buy, but we also had brains.

In most cases, “owning” a “home” was fundamentally the same thing as renting anyway, except more expensive and less flexible. Banks owned two-thirds of American homes, so in most cases renting was like paying a middleman, a landlord who skimmed a few percentage points off our rental payment before giving the rest to the bank. In exchange, we renters enjoyed a tax-free, insurance-free, maintenance-free, hassle-free living experience.

These were the kinds of things I told myself during the biggest housing bubble in all of American history. Things were changing fast, and I believed they were changing to favor first-time home-buyers like us. Interest rates were going up, and residential real estate sales were going down. Soon the prices would go down, too.

In a year things would look much different indeed!


A Basic Necessity – Part 1

Eighty years ago, on December 7th, 1941, the median house price in America was ~US$7K, or around US$130K in 2021 dollars. Median, annual household income in 1941 was about US$2,500. That’s a ratio of 3.5:1, house price to household income.

In the 50’s the ratio evened out at around 2:1 in favor of buyers, and stayed that way for a couple decades, until it started ramping up in the 70’s, culminating at 4:1 in 2020 nationwide. However, in many American cities the ratio is more like 8:1 or above, even in the so-called fly-over states.

My family and I live in a fly-over state, and our house-to-income ratio is around 6:1, at least for houses we’re willing to consider a home. And even those houses aren’t that great, compared to the house I bought in Dallas in 2003 (which happened to be in line 1941 median house prices, around US$130K, as compared to the median price of $400K today).

Bottom line: housing is expensive as hell.

Welcome to the new normal. It’s probably not going down. My instinct tells me the whole market is rigged, but it’s hard to get solid facts on what’s happening because there’s high-dollar incentive to obscure the facts.

One thing’s for sure: we’re entering uncharted territory for the price of one of three basic necessities, a house.

Equity-poor, first-time house-buyers are screwed. (Including me, as I haven’t bought a house in the U.S. in over three years).

Note that I will never use real estate lingo like “home”. A cardboard box can be a home, as George Carlin once pointed out.

Residential real estate is property and a structure that supports living. If you pack emotion into what will most likely be the most expensive thing you ever buy, then you are a fool.

Like most people, I don’t want to be a fool. I want to understand the trends and new realities, because we are entering a new reality, for sure.

Is owning still a thing? In real estate lingo, “owning” means paying another landlord, the bank, with many more expenses tacked on (insurance, tax, maintenance, time). So how do these expenses compare to rent?

This is the first of a series of residential real estate explorations. At this point, I don’t even know where to start. But I’ll find out.

Oh, and December 7th, 1941, is a day that will live in infamy, as one of our greatest presidents phrased it. Having dedicated a decade of my life working with forward-deployed Navy in the Pacific (in Japan, no less), the day resonates with me. In those days people had resilience. I will, too.