Yikes!!!
I came into adulthood when the housing boom really began in the mid-1970’s. I haven’t bothered to gather the actual data to back up my timing assertions, but I feel confident in saying that the era post-WWII until that time was an era of vastly expanded residential building and generally increasing access to the suburban American dream of owning a home. That and defined benefit pensions were the rewards American society chose to heap on the warriors who had fought gallantly in the Pacific and European theaters to save the free world from the fascist threat. Everyone got their little slice of the dream and the cost of that was a marginal tax rate of 90% for those who made more than $10 million per year. It is probably a gross simplification of complex macroeconomic and socioeconomic trends to say that this pay-off of the Greatest Generation G.I.’s was sanctioned for a while and then gradually ground the gears of the power elite, leading to the Ronald Reagan presidency starting in 1980. Robert Schiller writes in his book Finance and the Good Society that while every successful post-war economy put in place progressive taxation, finance, as a discipline, gradually seeped into our culture and economic system in such a way as to give wings to the most successful among us. He argues that finance is more or less the culprit that turned egalitarianism on its head and led to the massively unleveled playing field in wealth accumulation that we now live with in the world at large. Nothing tracks that trend better than the housing market.
When I was finishing my “liberal arts” education as an undergraduate at Cornell in 1974/75, I was faced with a choice that was perhaps more stark than most. It was totally self-imposed, but was schizophrenic nonetheless. I had shifted from engineering to arts & sciences and was double majoring in economics and government for some reason (who can remember a young man’s rationale?) My course selection, when not governed by schedule, was driven to select courses that emphasized my upbringing in the developing world. I tended to take courses in development economics and third world government. That peaked by taking a course my senior fall semester in Modern Revolutions. I wrote my thesis on the Cuban Revolution and the more recent Chilean upheaval and return from Communism to dictatorship. But then graduation started to loom and while everyone else was applying to medical, law or graduate school (or seeking employment as did most engineers), I had no clue where to turn next. My Modern Revolutions professor was so taken with my work that he asked to be able to promote me into a graduate program on revolutionary studies. My best pal at the time wanted me to join him in business school. I took one course in quantitative operational methods and suddenly found a place in between engineering and economics that I had not realized existed and that very much intrigued me. The rest is history, as I chose to apply to business school and proceeded to get my MBA in finance in a short but action-packed year.
I suspect that finance became my chosen path less because of a love of money and more because the math was compelling to me and the general academic trends at the time were heading more in that direction than towards accounting or marketing, by at least some marginal amount. Banking was the place where there were a growing number of jobs and the generalist element of banking suited guys like me who had come quickly and somewhat rashly to the study of business. So, as I was studying my finance curriculum I had a professor of banking that had been a management science guru at a bank called Bankers Trust, at the time the sixth largest bank in the U.S.. He was not particularly sanguine about the prospects for Bankers Trust since he saw massive consolidation coming in the industry. He made sure we all knew what to expect of our lives on Wall Street and started by saying that we all needed to take the train up to Darien, Connecticut and buy whatever size house we could afford. He advocated leveraging ourselves as much as we could so as to benefit from what he saw as a massive housing boom to come based on the demographics of the Baby Boom generation. We all paid close attention.
In 1976 when I landed in New York as a newly-minted MBA working at none other than Bankers Trust (so much for heeding that professorial advice), I rented an apartment like most young professionals, except I did so in Queens rather than Manhattan since I was more interested in a normalized suburban lifestyle than a go-go Manhattan bar-hopping lifestyle. There was also a girl I was sweet on who worked on Long Island that would soon become my wife. Once we were married (literally, within two months), I went and bought a $64,000 starter house on Long Island. I was prepared to accept the home-buying advice of my professor, but not the Connecticut venue since the added price point of housing up north did not strike me as good value. Why pay an extra $10,000 for the same house to just be in Connecticut, right? The short-sightedness of youth can be startling when looked at with hindsight.
In the last 47 years I have bought and sold seventeen homes (technically, I have not yet sold this one on the hilltop). Every single one of them appreciated considerably. I know that is not the experience of everyone in the U.S. over the past half century, but it certainly reflects the vast majority of Baby Boomer experience in residential real estate. In the same way that the Greatest Generation experienced a lifetime of increasing access to home ownership, my generation experienced a consistently rising housing market. Leverage has always been our friend. To be fair, that started to change in 2008 when the subprime crisis caused a bubble in the market that popped quite badly for those who either used far too much leverage or had overpaid at the peak of the market. But after a few years of home prices settling down (during which, I might add, I bought this particular hilltop), prices started to rise again with the lower and lower and eventually almost non-existent interest rates. Leverage is a particularly friendly thing when there is no concomitant cost to imperil the borrower.
I, like many of my generation have learned to use Zillow to keep abreast of our favorite housing markets. It’s called indulging in Zillow Porn because it is used either to reassure us of how well we are doing with out residential investment or because we can fantasize about buying into one our secret wish markets. I’m not sure I succumb to either indulgence anymore, but Zillow still has my number and likes to remind me of what I am missing out on. It now seems that anything in a market where I might be interested in buying costs $4.5 million, give or take a hundred thousand. Yikes! Too rich for my blood.
Just yesterday that got an exclamation point added to this housing juggernaut due to a small landscaping job I had someone bid on. This is an out of doors environment on this hilltop and I do care about the look and feel of my surroundings. I do most, if not all, of my own landscape design and execution (with the help of day laborers if needed). Design services for interior or exterior projects just strike me as something you use if you have no time or inclination, both of which I have in abundance. I liberally estimated this new project at $5-7k (it was only 120 square feet of space on a 2.5 acre lot) and I would have considered it an extravagance at that price to see what a name landscape designer could add in terms of aesthetic value. Yikes! When I got the proposal yesterday, it was for $43k, a real show-stopper. Double Yikes!! There was nowhere to go with that sort of bid, so I quickly demurred.. Then I set about doing it myself. I hired a day laborer, I had the space cleared, I bought materials and I got to work. In one day and at a cost of $1,500 plus my time, I got the job done. Triple Yikes!!! The world is yet again askew.