House as shelter

[ScooterGuy]

I'm curious. When did the concept of 'house' stop being 'shelter?' You know, something to keep the rain and the sun off ... keep the wind out ... provide a reasonably safe place for 'us' and mostly keep 'them' outside. When did we start placing primary emphasis on 'house' as a source of equity, of value?

Despite being older than the hippie & counter-culture generation (I was born in 1942), I do remember the Domebooks I, II & III; the Whole Earth Catalogs; and the equally soft-cover Shelter. I still rember the books of Ken Kern, writing practically about the Owner-Built House.

However, in current times, about all I hear--even from us LBYM FIREd folks--is how much equity we have (and 'they' don't). My house is worth more than your house ... neener, neener, neener!

When did we change from living in shelter to dwelling inside our asphalt-shingled investments?

Just my opinion ... other folks thoughts may differ.

[dex]

Good points - I think it started when keeping up with the Jones started.

[bbbamI]

If we had never moved away from our home town, I don't think we would consider the market value of our home. We would live and die there.

Since we did have to move several times because of employment, the value of the house seemed more important because that was all we had. Since no family or friends were around, the value part of the house was looked at more instead of the "home" part.

That's the way it's been for us.

[Coach]

Scooterguy, you ask an interesting question. I think in part that the home became an equity investment when we could convince ourselves it was. "I know, I know, I should be saving, but thank goodness my home equity is going to bail me out." The historical inflation adjusted home price line on this chart amazes me. I found it in the Wikipedia article on the U.S. Housing Bubble.

Coach

[RunningBum]

Originally Posted by bbbamI

If we had never moved away from our home town, I don't think we would consider the market value of our home. We would live and die there.

Since we did have to move several times because of employment, the value of the house seemed more important because that was all we had. Since no family or friends were around, the value part of the house was looked at more instead of the "home" part.

That's the way it's been for us.

I think that's a real good point, when you buy and sell a few times over your life you get to realize how important it is to consider how much equity you have in them. Getting a big check at closing means you can put more down on a new house, which means either a nicer home or a smaller mortgage.

Plus it used to be that retirement was your pension + social security. The average American didn't really have to think about net worth and whether you had built up enough for retirement, if you had 40 years in with a good company you were probably set. Nowadays most people have to set aside money in IRAs, 401Ks, etc, and figure out how much they really have and whether it is enough. A valid part of a retirement plan is to downsize your house, tapping into that equity built up over the years, while also reducing expenses.

I hadn't really heard a lot of people talking about equity in their home except for here, and usually it's in the context of giving information about their situation when asking for advice. Where are you hearing it?

[justin]

To answer the OP's question, whenever good financing terms became available (the 30's?). The 30 year amortized mortgage made home ownership possible for many more people, and increased the size/value of house that one could purchase.

I recall seeing Sears Robuck house catalogs where one could order the parts for a whole house for a few thousand dollars (back in the 20's maybe?). Assembly extra. Financing was either non-existent, or consisted of something with high initial payments (relative to the 30 yr fully amortized mortgage) like a ten year note paid in ten equal principal payments, plus interest.

[TromboneAl]

When did the concept of 'house' stop being 'shelter?'

Ogg cave big.

[ScooterGuy]

... it's depressing.

The following is an extensive quote from one of the 'housing bust' blogs, plus my Cassasdra-like comments at the end. Please feel free to disagree.

Thus:
From Housing Bubble BustHow did this get started? It was in the mid sixties that the US started creating more dollars than it had the gold to back them up. To fight the Vietnam War and also support the massive welfare programs at home. Now the Fed could print as much money they wanted, as they were practically off the gold standard. M3 exploded. Officially, the dollar was delinked from gold only on Aug 15, 1971. Why stop with just Govt. spending. If this newly created money could be handed directly over to the consumers, they would spend it and fuel economic growth. This along with the low interest rates of the Mid sixties, gave birth to the Biggest Asset Bubble ever. Home Equity extraction began, and has continued as of today. For Americans, their home was not just a shelter any more. It became a way to create wealth. The Fed also makes insane amount of money available to home buyers. Who keep bidding higher and higher to get into a home, further inflating home values. This has been happening year over year for nearly four decades. The 1945-1980 graph also puts the birth of this bubble pretty much around 1965. So how much Home Equity have Americans extracted from their homes since 1945? This phenomenon has gotten out of control since the Fed started lowering the interest rates after the 2001 recession. This is no different than Milton Friedman's infamous "helicopter drop" of money. Except, you just need to apply for a home equity loan. This Giant Bubble has transformed the US into an Economic Power House. But, ‘The World's Largest and most Robust Economy’ is nothing but One Gigantic Housing Bubble. The last real estate boom of late eighties and the resulting recession, merely look like a small bump on a graph. For those who think that was a bad recession … we are yet to see an actual decline in the Housing Valuation. What will that be like? I think what we have seen in the last five years, is the blow-off top of a bubble, which has been expanding for nearly 40 years. When this bubble pops, so will end the US dominance of the world. That begs the question, is Depression next? Comments by ScooterGuy: [IMHO, we—that is, the nation—are already in a recession now, complicated by stagflation. This was a credit bubble, and is now a credit bust, which merely incorporated mortgages, but will include secured debt (i.e., cars & trucks, etc.) and unsecured debt (i.e., credit cards, etc.). I personally predict that, when the federal government finally starts to make the 1st timid announcements of recession, we will be well into what will come to be called by historians as the Greater Depression of 2006, which will be worldwide, and for which the USA will unfairly be blamed. American citizens—rightly or wrongly—will come to be seen as pariahs on the world stage, and we will re-enter a period of political & cultural isolationism.][Also, IMHO, if we—again, the nation—come to be viewed as the ‘end of the US dominance in the world,’ then that will leave us as a 2nd-class power … with over 54,000 nuclear weapons, and the means to deliver them, at our command. I don’t think so! But that would require a return to Old-Time-Religion, the rise of a ‘strong-man,’ single-party rule, the suspension of the constitution and the establishment of a fascist/theocratic state, functioning as a North American Empire. That was envisioned by an author whom I greatly admired, Robert A. Heinlein, in his 50’s book, Revolt in 2056. But, of course, it can’t happen here and now … never, never, never.]

[Webzter]

Originally Posted by justin

I recall seeing Sears Robuck house catalogs where one could order the parts for a whole house for a few thousand dollars (back in the 20's maybe?).

My parents bought and relocated a Sears house in the '80's. We were able to find the catalog ad for our particular model at the local town's historic society.

edit: the model home they bought was, I think, from 1926 and cost $1,600 railed to your town.

[justin]

Originally Posted by Webzter

My parents bought and relocated a Sears house in the '80's. We were able to find the catalog ad for our particular model at the local town's historic society.

edit: the model home they bought was, I think, from 1926 and cost $1,600 railed to your town.

My mom grew up in a Sears-type house. It still sits next to my grandma's "new house" (built in the 1950's), and it is a rental (at $250/month - what a steal! recently remodeled in the 1950's - even has indoor plumbing now...).

According to an online inflation calculator, $1600 in 1926 equals $17,824 in 2006 dollars. I suppose a hardworking family back then could earn that kind of money in a few years and pay cash for it. Paying cash vs. financing the equivalent of $17,824 isn't really a big deal. Oh yeah, U build it, so sweat equity is a big component...

I feel pretty confident you could build a similar quality house today for $1600 1926 dollars (assuming you do all labor yourself). Plus land costs, of course.

[lets-retire]

My father lives in a Sears house, built by is father. So does his neighbor across the street and the neighbor across the other street. If I recall correctly there were four or five people who happen to buy the same style Sears house within 300-400 yards (I guess that was the start of tract housing). With the additions done over the years you really can't tell which houses have the same floor plan anymore.

[Want2retire]

Aren't the Sears houses the same as the original Craftsman style houses with all the built-ins and style? I can't imagine getting anything that sturdy and beautiful for $17,000, even if I had to build it.

Hey, with my present nestegg I could buy several.

[newguy88]

It became the equity cash cow because salary increases have not kept up with the real inflation, like energy costs. In addition the run up in home prices made people decide hey I WANT THAT NEW CAR, I want that nice big screen TV I want that vacation and were able to do it by taking out lines of credit on their homes. A Big Mistake.

Hey get a look at this place..


$9,500
4 Bed, 1 Bath
1,534 Sq. Ft.
0.02 Acres
MAHANOY CITY, PA 17948

Single Family Property, Approximately 0.02 acre(s), Year Built: 1913, Waterfront property, Two and a half story, Basement, Dining room ... View details. FIRST SOURCE PROPERTIES

[packrat44]

Originally Posted by justin

According to an online inflation calculator, $1600 in 1926 equals $17,824 in 2006 dollars. I suppose a hardworking family back then could earn that kind of money in a few years and pay cash for it. Paying cash vs. financing the equivalent of $17,824 isn't really a big deal. Oh yeah, U build it, so sweat equity is a big component...

I feel pretty confident you could build a similar quality house today for $1600 1926 dollars (assuming you do all labor yourself). Plus land costs, of course.

Originally Posted by Want2retire

Aren't the Sears houses the same as the original Craftsman style houses with all the built-ins and style? I can't imagine getting anything that sturdy and beautiful for $17,000, even if I had to build it.

Hey, with my present nestegg I could buy several.

My DW, 13yo son, 12yo daughter, and myself designed and built a 1,750SF 2 story house in 1991 for $42,000 by doing all the work ourselves (with exception of excavation and placing concrete). The house has maple hardwood floors in the LR, DR, Kitchen and hall and a 384SF redwood deck. The separate 1,152 SF garage which is fully insulated and drywalled ran $6,500. This sits on 2 acrces with 250LF of waterfront which costs us $24,000.

[CyclingInvestor]

I have always thought of my house as just a place to keep my stuff, just as I always
viewed a car (when I had one) as a way to get somewhere when it was impractical
to ride. I see "home equity" as a sunk cost, a pre-payment of living expenses. I feel
uncomfortable including it in net worth calculations.

[Want2retire]

Originally Posted by CyclingInvestor

I see "home equity" as a sunk cost, a pre-payment of living expenses. I feel uncomfortable including it in net worth calculations.

Me too. So often home equity is a figment of the owner's imagination unless and until he moves.

Often additional home equity does not even improve quality of life in the meantime. For example, an extra room that isn't used is just more to heat/cool/insure/clean... more hassle.

[lazygood4nothinbum]

mom bought our house in bergen county new jersey for about $35K in the mid 60s and sold it for about $70k in the early 70s. i was just there and the house is for sale. so i checked realtor.com and it shows an asking price of $650k. but the town is still quite nice and it is just 10 minutes outside of new york city where i imagine a lot of people who work there would like to live.

is not a lot of this rise in price the real action of supply and demand? what does it cost to live similarly in europe where there are even more people and less selection? does the rise of cost curve take into account population increases and land availability decreases or does it just look at what things should cost now were population and land availability to remain constant?

where i live, florida's been getting a pretty bad reputation lately but it is still a very desirable place to live. where else in the country can you bike to the beach year round yet pay 1/2 or even way less of what it costs to live in new jersey, where i wouldn't live even if i could afford it. i don't think it is all fake equity. i think it is so expensive there because there are just so many people. five minutes on just one of their highways will tell you that.

[justin]

Originally Posted by newguy888

Hey get a look at this place..


$9,500
4 Bed, 1 Bath
1,534 Sq. Ft.
0.02 Acres
MAHANOY CITY, PA 17948

Single Family Property, Approximately 0.02 acre(s), Year Built: 1913, Waterfront property, Two and a half story, Basement, Dining room

Only 2.5 hours to Manhattan, too! It says it is waterfront. Must be a nice part of town.

[Want2retire]