Tag Archives: American Dream

Sociologist: economic crisis leads to mistrust of the system

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As the economic crisis drags on and Americans have lost a lot of wealth, one sociologist suggests the economic uncertainty leads to mistrust of the system:

“I don’t want to romanticize the past — it wasn’t perfect — but there was a sense of security, and that is gone,” said Thorne, a sociologist at Ohio University and an expert on bankruptcy and consumerism.

“We felt that if we played by the rules, that we would do all right. Now there is a feeling that you are never on solid ground, even if you do the right thing.”

Thus the biggest loss may go beyond the decline in the American family’s assets, she said: trust.

“Despite our most honest efforts, through all of our lifetimes, we worked our jobs, we played by the rules, and we still lost. That fosters fear and mistrust in the system.”

While the economic effects of a recession or slow recovery are well-known, I’ve been interested in commentators who have argued that there is much longer-lasting social and emotional impact. While Thorne is quick to not “romanticize the past,” there is some nostalgia here: American prosperity after the end of World War II was perhaps unprecedented in history. What happens if we never see this again, in the United States or elsewhere in the world? If this sort of prosperity and certainty doesn’t come back for a long time, how would people find a new level of trust in the American system?

Should the American Dream include a McMansion?

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Van Jones suggests the American Dream may have once included a McMansion but such hopes have been downgraded in these tough economic times:

We may not be able to save the American Dream from the point of view of, you know, everybody is going to have a McMansion and be rich, but we should be able to make a—have a country where you can work hard and get somewhere. The two big barriers right now are these. It used to be the case that the pathway from poverty into the middle class was go to college and buy a house. Today, those are the trapdoors from the middle class into poverty, because student debt is crushing a whole generation of young people who are trying to make a better life for themselves, and underwater mortgages—one-quarter of every mortgage in America underwater—is dragging people from the middle class into poverty. So the American Dream, so-called, has been turned upside down, inside out.

Isn’t Jones suggesting that the Dream once included a McMansion? If so, this fits with an idea I’ve shared before: McMansions may always have their critics but if the economy turned around and McMansions became more attainable again, they would receive less criticism and people would go back to buying them. At the peak of the housing market in the mid-2000s, you could find plenty of people who vocally shared their reasons for disliking McMansions. However, this criticism has been backed in recent years by a narrative that McMansions (along with SUVs and perhaps Starbucks lattes) either exemplify or brought down the crashed American economy and we should say away from these houses in the future.

 

The role of emotions in buying a McMansion

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“Financial journalist and author” Jean Chatzky discusses her rules about money and hints that buying a McMansion and working with money in general is complicated by emotions:

Have money rules changed with the recession?

I don’t know that the money rules have changed, but I think the recession has made people realize the importance of some of the money rules. For example, Money Rule #26 is “Just because someone will lend it to you, doesn’t mean you should borrow it.” I think it’s the lesson of the housing crisis. We over-borrowed. We took out bigger mortgages than we could truly afford because the banks were willing to give it to us. Every unfurnished McMansion proves that point. For everybody who’s ever felt house-poor or student-loan poor or credit-card poor, the recession has hammered that home.

Why do people tend to overcomplicate money?

It’s really emotional. If I had a bottle of champagne and I opened it with a group of friends, there would be this feeling that we should divvy it up fairly. But if I said, “I have some extra money,” people start making value judgments. There’s morality involved with how we divvy up the money.

Combined with that is the fact that we’re not taught about money as kids or in the schools. There’s not room for it in the curriculum. Getting financial literacy into every school in the country is a very important thing to do, but it’s an uphill battle. The combination of those two things makes many of us feel insecure when it comes to making the right decisions about our money, whether we’re spending it, saving it, or investing it.

Her rules seem meant to limit the emotional side of money. If you have rules to follow, you can sidestep the emotional aspects. While the rules may be helpful, this is a good reminder that economic activity is often emotional. We often talk as if humans make decisions purely for economic reasons when the real story is much more complicated. Stock trading and investing in stocks, purchasing consumer goods, and saving money are laden with emotions.

So what emotions lead to purchasing a McMansion? I haven’t seen an academic study that addresses this. However, critics of McMansions have made a number of arguments about why people buy McMansions: they want to impress other people, they have little sense of style or design, they have money to burn, they don’t realize they can get by with less space, they are unaware of how others might negatively view their home, and they are obsessed with getting a deal without thinking about quality. Critics generally argue that McMansions are attempts at displaying a particular status to others and this causes the buyer to overlook some concerns to which they should pay attention.

I’m guessing that McMansion purchasers wouldn’t give the reasons that critics suggest. At the same time, purchasing a home, usually the biggest purchase of someone’s life, is full of emotions. Buying a dwelling is one thing but when you add up a mortgage plus the idealization of a home in the American Dream and it becomes much more than that.

My, your lawn is lush and green…especially where the dogs were!

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Record temperatures in Chicago have meant green lawns ahead of schedule. This is not usually considered a bad thing: the brown or dormant grass of winter has given way to verdant lawns that wouldn’t look out of place in the many lawn commercials one can see at this time of year. However, in walking around, I noticed that these lawns are often punctuated by more lush spots, presumably from the work of dogs. Here is one picture from an adjacent neighborhood:

Some thoughts about this:

1. The typical “perfect lawn” doesn’t include such spots. So if someone has pets and wants a great-looking lawn, how do you balance these two interests? Cut the lawn a lot? I haven’t noticed any products talking about this kind of fertilization.

2. Perhaps this is a bigger problem in townhome/condo/apartment neighborhoods where there are common lawns. To curb their dog, people walk about the neighborhood and use the common areas. Why use spaces close to your home when you can take advantage of other areas? (Additionally: you are paying for those other areas so why not?)

3. Some patterns emerge: I would estimate at least 80% of the spots were within four feet of the sidewalk. This likely says more about the dog owners than the dogs: the owners want to stay on the sidewalk so the dogs have to stay close by. Also, taller objects, signs, mailboxes, trees, etc. tended to have lusher grass around them. Here is another shot that also shows the first pattern:

Does anyone get upset about this desecration of the lawns? If the battle is between dogs and a perfect lawn, it looks like the dogs win at this time of year.

Some housing not so cheap when you factor in transportation costs

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Plenty of people may move to where the cheaper housing is located but this could come with higher transportation costs:

In Chicago’s transit-rich Ravenswood neighborhood, where there is an average of one automobile per household and 42 percent of commuters use transit, monthly transportation costs averaged $751 in the five-year period studied, the center determined.

Households in Marengo in McHenry County incur an average of $1,324 in transportation costs each month, the study found. Each household in Marengo, where transit ridership is less than 1 percent, also logs an average of 24,438 miles per year in their cars, versus 12,150 miles annually in Ravenswood.

When people are looking for a place to live, taking into account housing and transportation costs changes the affordability outlook significantly, said Scott Bernstein, the center’s president…

[From the print edition:] Some 69 percent of neighborhoods in the Chicago area are considered affordable under the traditional definition of housing affordability: rent or mortgage payments consuming no more than 30 percent of household income, the study said. But only 42 percent of the neighborhoods are considered affordable when housing and transportation costs are measured, it said…

The study also found that it is more difficult for a typical household in the U.S. to find an affordable place to live compared to a decade ago because incomes increased about half as much as transportation and housing costs since 2000.

This provides some data to back up Joel’s claim from earlier this week: life is cheaper (and perhaps better?) without a car.

What I find fascinating about this is that this report ties transportation costs to the idea of affordable housing. Typically, we only think about the cost of the housing itself but if you built affordable housing in the middle of a corn field 90 miles west of Chicago, those housing units won’t really help anyone.

At the same time, this is a trade-off many Americans seem willing to make: you pay less for your house and then pay more for transportation costs over time. Perhaps because the house is a significantly larger “one-time purchase” (you have repeated payments but they are somewhat fixed and you have already psychologically taken possession of the house even though you don’t own it) people can justify then paying more for transportation over time because the money trickles out and the costs are more variable. Plus, if you think of the home as one of the key pieces of the American Dream and Americans should love to drive anyway, this all could make some sense.

This is also a reminder that the cost for entry to the suburbs is not just about finding somewhere to live which often requires a sizable down payment and a mortgage. In order to get anywhere, whether it is a job or store or recreation area or church, one needs a car in the suburbs and one needs to have extra money on hand to deal with this. Without being able to pay for insurance, gas, maintenance, and somewhere to park (which is factored into a parking space or the driveway/garage that is factored into the mortgage), there is plenty of extra cost involved with having a car. This reminds me of a story I read recently about an affordable car program in Wisconsin where the state or some agency was providing cheap but reliable cars to people to help cover these growing and important transportation costs.

Reasons young Americans are not buying houses at the same rate as prior younger generations

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Derek Thompson shows that younger Americans are not buying homes at the same rates as previous younger generations:

When older generations wonder what’s the matter with Millennials, they often judge their younger cohorts against such financial and social benchmarks as finding a job, getting married, and buying a home. These observations often come wrapped in weak science — “blame Facebook for their indolence” — or dripping with judgment — “blame their parents for making them weak.” The science is weak, but the observations are true. Fewer young people are finding jobs. Fewer young people are getting married. Fewer young people are buying homes.

Between 1980 and 2000, the share of late-twenty-somethings owning homes had declined from 43% to 38%. The share of early-thirty-something home owners slipped from 61% to 55% in that time. After the boom and bust were over, both rates kept falling. The rate of young people getting their first mortgage between 2009 and 2011 was chopped in half from just 10 years ago, according to a recent study from the Federal Reserve.

The reasons Thompson gives for this decline: rising student debt, lower (delayed?) rates of marriage, limited wages, and housing prices have increased.

Two things that I like about this:

1. Generational talk and “common sense” about the differences is indeed “weak science.” Many people provide anecdotal evidence (my children or students do this, etc.) tied to individual traits (they don’t have the same work ethic, etc.).

2. Because of this “weak science,” we do need to examine how structural forces affect generational behavior. Thompson suggests that broad factors in economics and society have pushed this generation of younger Americans into different actions.

One thing I think is missing here: there seems to be an assumption here that if the economics and social factors were right or similar to the past, this younger generation would buy houses at similar rates. What about the cultural component, the idea that a younger generation of American doesn’t buy into the traditional American Dream in the same way as previous generations? Of course, these structural factors can influence this rejection or adoption of the American Dream: if it is simply more difficult to buy a home at a younger age today, then people might pursue a different vision.

But I think there is growing evidence (see here and here as examples) that this younger generation genuinely values different goals than previous generations and owning a house is just not the same priority. Perhaps they have different values like wanting to be in culturally exciting areas (the creative class thesis). Attaining this and owning a home are not mutually exclusive but most suburbs would not fit this bill. Perhaps they do not desire long-term debt (the common 30 year mortgage) in a rapidly changing world or they want more freedom to be able to move and respond to changes in job markets and cultural and relational shifts. Perhaps they don’t want to have to maintain a home and would rather spend their time elsewhere. Perhaps they explicitly reject the materialistic or consumeristic approach they see in previous generations and instead prize friendships and fulfilling careers. If they do want homes, they want different kinds than in the past (see here and here) and perhaps don’t think many homes reflect their desires.

This is worth paying attention to: will the idea of the American Dream and the need to own a home change dramatically in the years to come because of both structural and cultural shifts?

Find the social mobility of the American Dream in Canada

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One analysis of social mobility in Canada suggests the American Dream can be found north of the border:

Yes, the U.S. is richer, but it’s also significantly more unequal, and a lot less mobile. Inequality is inherited, much like hair and eye colour.

The conclusion is based partly on the work of University of Ottawa professor Miles Corak, a social policy economist and former director of family and labour research at Statistics Canada…

“What distinguishes the two countries is what’s happening at the tails,” Prof. Corak explained in an interview. “Rich kids grow up to be rich adults and poor kids stay poor. In Canada, that’s not so much the case.”…

But it’s a country of extremes, and life is good if you’re at the top in the United States. A child’s chance of staying at the wealth pinnacle is much greater than in Canada.

While I’m sure people will bring up some important differences between the United States and Canada including a much bigger population in the US plus a different history of immigration, this is still interesting. One of the primary ideas of the American Dream is that anyone can get ahead if they work hard and take advantage of the opportunities in front of them or that they create. Recent research suggests this is not as available to American citizens as the popular image might have people believe. Moving from the bottom to the top is actually rare and a lot of people are simply stuck in place.

It would be interesting to hear politicians talk in more depth about this. One common answer is to help American students go to college as the degree will help compete in the new information economy. But then we get into questions into who should pay for this college education and how schools before college need to be improved so that students are prepared for college. Job training programs are another popular answer though I’m not sure they are helping a large number of Americans. Are there other, better answers or is this a minefield a lot of politicians would try to avoid outside of platitudes about helping people reach the American Dream? Could a politician even cite this recent research about limited mobility without being vilified?

Just asking: is there a “Canadian Dream” that is similar to the “American Dream”?

Forecast: US homeownership rate to hit low of 62% in 2015

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One forecast suggests that homeownership rates in the United States will drop to a low in 2015 before rising by 2025:

All this could push home ownership down to levels not seen at least since before the Census began tracking this data in 1963. Home ownership soared to 70 percent in 2005, but it could fall to 62 percent by 2015, according to the number crunchers at John Burns Real Estate Consulting. They suggest that the effect of foreclosures drops home ownership 5.6 percent, and cyclical trends, like poor consumer confidence, tightening mortgage credit and the weak economy drop it 3 percent. Positive demographic trends would only offset that by 0.7 percent…

Burns believes home ownership will return by 2025 to around 67 percent, as previously foreclosed borrowers return to the housing market, cyclical trends improve and positive demographics start to carry more weight.

This is quite an extended process that first requires foreclosed and underwater loans to get off the books before the homebuyers turn the numbers again. It is interesting that there is little political discussion about the length of this process – does it benefit any current politician to be forthright about how long it might take to turn the housing market around? Do people care that much about homeownership while issues like jobs and debt are also concerns?

If the process does take this much time, it could also lead to a long-term reassessment of real estate. I doubt that people will no longer value owning a home or that homeownership will disappear from the cultural image of the American Dream as some have hinted. However, there is less of a chance it will be considered an investment and people will be more careful with their purchases, particularly paying attention to being able to pay for it even in rough patches.

How much it costs to live in the cheaper suburbs or expensive New York City

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Opponents of sprawl argue that while many prospective buyers move further away from work in order to buy bigger yet cheaper homes, there is a cost. One website argues that the each mile closer to work is $15,900 that could be spent on a house:

We all know that driving to and from work every day is costly, but exactly howmuch of a toll does each mile of commuting take on your finances? This True Cost of Commuting graphic breaks it down.

Taking stats and calculations previously mentioned by Mr. Money Mustache, the infographic illustrates just how expensive commuting is. Each mile you live from work costs $795 in commuting expenses per year (assuming a driving cost of 34 cents per mile and factoring time lost with a salary of $25 per hour). $795 a year for just one mile! You could buy a house worth $15,900 more with that, as Mr. Money Mustache pointed out in his article, since $795 would cover the interest on a 5% mortgage rate.

If you don’t want to calculate in the time-is-money factor, each mile (one way) of commuting will cost you $170 a year. It’s a compelling reason to move as close to work if you can (or bike to work or telecommute).

See the large infographic here. I don’t know about Mr. Money Mustache’s calculations but this is a sizable number.

At the same time, there were reports this week that the Occupy Wall Street protestors tend to live in pricier homes. As Megan McArdle notes, this is a consumption choice where people decide to spend more of their income on a home in a great city:

My initial reaction was the same as many people I’ve seen in comments sections: the protest is in New York, which is expensive.  This is hardly surprising.

But on second thought, I don’t think that’s quite right.  At least some of the houses identified by the Daily Caller are in places like Texas and Wisconsin.  But more importantly, I’m not sure we should “discount” these home values for location.  The fact is that living in an expensive city is a consumption choice.
You hear this argument all the time from people in New York.  “Rich?  Hah!  We’ve got four people in 1600 square feet, and our school bills are going to put us into bankruptcy.”  Many New Yorkers believe that they should be given some sort of income tax abatement because of the expense of living there (with the lost revenue being made up from “really rich” people, natch).  Slightly less affluent New Yorkers frequently believe that landlords should be forced to offer them “reasonably sized” apartments at a modest fraction of their income, because after all, otherwise they couldn’t afford to live in New York…
Living in a blue state is a choice.  If coming to New York meant that you had to put four people in a three bedroom apartment that’s uncomfortably far from a subway line, instead of buying a nice little condo in Omaha, this does not mean that you are not “really” better off than your counterpart in Omaha; it means that you have chosen to consume your extra wealth in the form of “living in New York” rather than in the form of spacious real estate, cheap groceries, and an easy commute.

So what people in the Midwestern suburbs might spend on a daily 20 mile each way commute in a SUV translates into a more expensive apartment in New York City.

Both stories cited above suggest consumption is a choice. But is it truly an unfettered choice? What would lead some people to aim for the bigger yet cheaper house in the suburbs and others to spend more money on a smaller place in a cosmopolitan paradise? Perhaps this information would help both sides engage in conversation rather than talk past each other and try to force the other side to follow their logic…

Of course, we could look at the broader trend of American political and cultural discourse on this subject. On the whole, government policies have promoted suburban living while a few big cities, such as New York City, have successful dense, mass-transit oriented living. Cultural discourse, even if it is shifting toward the younger generation’s increased interest in denser living, still privileges the suburban American Dream.

President Obama vs. Mitt Romney on dealing with housing crisis

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Even though President Obama and Mitt Romney are not officially running against each other yet, they have presented contrasting plans to deal with the housing crisis. Yesterday, President Obama offered a new “revamped refinancing program” that would help 1 to 1.5 million homeowners:

Under Obama’s proposal, homeowners who are still current on their mortgages would be able to refinance no matter how much their home value has dropped below what they still owe…

At the same time, Obama acknowledged that his latest proposal will not do all that’s not needed to get the housing market back on its feet. “Given the magnitude of the housing bubble, and the huge inventory of unsold homes in places like Nevada, it will take time to solve these challenges,” he said…

Presidential spokesman Jay Carney criticized Republican presidential candidate Mitt Romney for proposing last week while in Las Vegas that the government not interfere with foreclosures. “Don’t try to stop the foreclosure process,” Romney told the Las Vegas Review-Journal. “Let it run its course and hit the bottom.”

“That is not a solution,” Carney told reporters on Air Force One. He said Romney would tell homeowners, “‘You’re on your own, tough luck.'”

How much of these proposals is about looking for votes versus actually seeking out a plan that will help ease dropping home values, foreclosures, and a housing glut?

At the same time, the Washington Post reports that government efforts in recent years haven’t helped much:

President Obama pledged at the beginning of his term to boost the nation’s crippled housing market and help as many as 9 million homeowners avoid losing their homes to foreclosure.

Nearly three years later, it hasn’t worked out. Obama has spent just $2.4 billion of the $50 billion he promised. The initiatives he announced have helped 1.7 million people. Housing prices remain near a crisis low. Millions of people are deeply indebted, owing more than their properties are worth, and many have lost their homes to foreclosure or are likely to do so. Economists increasingly say that, as a result, Americans are too scared to spend money, depriving the economy of its traditional engine of growth.

The Obama effort fell short in part because the president and his senior advisers, after a series of internal debates, decided against more dramatic actions to help homeowners, worried that they would pose risks for taxpayers and the economy, according to numerous current and former officials. They consistently unveiled programs that underperformed, did little to reduce mortgage debts owed by ordinary Americans and rejected a get-tough approach with banks.

Too risky meaning that it was politically untenable when more people are concerned with risk and deficits?

The conversation about housing could play an interesting role in the 2012 elections as both parties look to claim the mantle of defenders of the American middle-class dream of homeownership.