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Old 04-05-2008, 12:31 PM   #41
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Could be, but she was talking about 2-earner households.
Yes, she was talking about 2-earner households. But her hypothesis is that families "need" two incomes to stay even.

Much of the second income is chewed up by the costs of the second income - taxes, child care, second car, clothes, meals. So people only end up with a small contribution to discretionary spending.
(I'd add "and that doesn't really compensate the family for the time away from the kids and the hassles of dealing with two fulltime jobs plus kids.")
Warren says that the modest left over amount is getting chewed up by the higher costs of houses, medical care, and education, so families can't afford to save.

I think that when you net the things that went up faster than husband's incomes with the things that went up more slowly, you get a wash. The result is that some of the second income is buying "extras" that the 70's family didn't have.

That's why I'm skeptical of the claim that today's two income families are "behind" their parents. I think they are somewhat ahead, but the gain is much less than they expected.
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Old 04-05-2008, 01:07 PM   #42
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Yes, the crisis appears to be that the median family has more income, more house, more cars, more education for their kids, and more child care than their parents had, but a lower savings rate.

Another point that she failed to mention was that despite a lower savings rate, this middle class family in crisis has a higher net worth. I guess there are two sides to those higher home costs....
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Old 04-05-2008, 03:50 PM   #43
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To create/protect these safety nets will require more taxes, and drastically less government spending. I wonder if our society is willing to make the sacrifices.
Do you think the government is willing to lower spending?



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Once people see their formerly middle-class grandma and grandpa living hand to mouth they might start demanding that government keep its promises.
Not If the young people are themselves in dire circumstances.
Then it will be everybody for themselves.
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Old 04-05-2008, 03:52 PM   #44
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As I understand her lecture, the "crisis" is that the middle class is living on the edge of bankruptcy due to the high cost of two necessities, housing & health insurance, which require a two wage earner household.

If one wage earner becomes sick, or if a child in the family does and a wage earner has to take care of the child, then one half of the income is gone for that time. With no savings, the family is now in debt, sometimes serious debt.

Families want to "move up" in housing because they want to get their kids into good school districts in the suburbs. Has anyone here ever sent their kids to an urban school? I'm telling you, it's not a pretty picture. A smart kid will become brain dead within a few years of that kind of education environment.

The solution is not LBYM. For middle class families the solution is not to buy a cheaper house and live in a less desireable neighborhood and put up with crummy schools. That won't wash unless you don't care if our country becomes less educated, less able to compete with foreign countries who value education, i.e. support it with taxes, the way we do not. And I'm talking about urban school districts as well as state funded higher education.

To speculate about what might be the upshot of the whole situation, let me pose this future scenario: a whole society of middle class families living a lower middle class lifestyle, more like a blue collar family whose children don't go to college because the family can't afford it and society can't afford to subsidize tuitions through state scholarships, PELL grants, etc. A less educated society would put our country at a distinct disadvantage.

We would be a society in decline. Maybe we already are but the fog of denial is so thick we can't see it.

To reduce the whole scenario to the cliche that families need to LBYM and save more is to ignore the primary thrust of Warren's analysis-- and would be a position requiring at least as much research as she has provided. So far I haven't seen it here in this thread.
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Old 04-05-2008, 03:57 PM   #45
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'm old enough to remember 1970, in fact I got married and bought a car that year. ... If people were content with the basic cars from a generation ago, they'd be spending even less today.
Well, I was thinking about cars in 1970 as well. The neighborhood I grew up in (1964-1977) and where my mom still lives USED to have within walking distance:
-a clothing store
-a shoe store
-a car dealership
-a McDonald's
-a Newport Creamery/Friendly's
-a nursery
-a pharmacy
-a supermarket
-a liquor store
- a credit union
-a 7/11
-a pizza joint
-elementary school
-several other stores I can't recall, one I think a Woolworth's

ALL of these have moved out/closed except the school, the liquor store, the credit union and the nursery. A CVS has replaced the supermarket. Everything else has either disappeared or moved a 15-20 min. drive away.. first to malls that are themselves now dead/dying: Sears, Filene's (gone, now JCP), Jordan Marsh (gone, now Kohl's).. then even further away to a huge swath of big box stores and strip malls off the interstate.

SO, living in the same modest place with the same modest house now REQUIRES a car, where it did not in 1970, unless you want to eat only the 'convenience' food found at CVS. Things can change out from underneath one quite easily. They even got rid of the corner mailboxes.

P.S. Even the local gas station is gone!
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Old 04-05-2008, 04:07 PM   #46
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Do you think the government is willing to lower spending?
No, actually, I don't think legislators will be willing to make the case to the public. They're too afraid and too indebted to lobbyists. I don't have much hope in that regard.

If young people see their parents in dire straits at retirement due to the collapse of medicare and social security, they might be motivated to create a system where that won't happen again. This would require a complete revamping of our nation's priorities, which is long overdue, IMHO.

Ladelfina, I grew up in suburban S. California and remember that the milk truck, the bread truck, the ice cream truck, made weekly rounds. My siblings and I walked to our neighborhood schools. This continued until high school. We never drove anywhere, except for rare outings to the beach. My mom did the shopping on the weekend. I can't remember going anywhere on the freeway as a kid.

Imagine driving one of those old 1970 vehicles on today's freeway. No air bags, no safety belts. What carnage! Even the basic used car with safety features these days costs around $12,000. I remember my first VW cost $400.

Middle class families not only require two incomes because of financial necessities, women MUST be educated and have careers because in the all too common event of divorce they often will end up taking care of their children alone. Not only that they must take care of themselves when their husbands divorce them later in the marraige after the children are grown. Yes, this is a common occurance these days.

Let's fact it. Comparing today's society to the 1970s is a futile endeavor. It's like they are two different worlds.
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Old 04-05-2008, 04:26 PM   #47
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I think the premise that most schools in America are crumbling is flawed. I think the "good" schools are mostly just the schools that all the students that were going to be sucessful anyway go to. Here is an article that talks about this:

Yahoo! Personal Finance: Calculators,Money Advice,Guides,& More

I think American parents may be wasting a lot of money trying to afford homes in the "good" schools when the average schools are potentially just as good at teaching.


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As I understand her lecture, the "crisis" is that the middle class is living on the edge of bankruptcy due to the high cost of two necessities, housing & health insurance, which require a two wage earner household.

If one wage earner becomes sick, or if a child in the family does and a wage earner has to take care of the child, then one half of the income is gone for that time. With no savings, the family is now in debt, sometimes serious debt.

Families want to "move up" in housing because they want to get their kids into good school districts in the suburbs. Has anyone here ever sent their kids to an urban school? I'm telling you, it's not a pretty picture. A smart kid will become brain dead within a few years of that kind of education environment.

The solution is not LBYM. For middle class families the solution is not to buy a cheaper house and live in a less desireable neighborhood and put up with crummy schools. That won't wash unless you don't care if our country becomes less educated, less able to compete with foreign countries who value education, i.e. support it with taxes, the way we do not. And I'm talking about urban school districts as well as state funded higher education.

To speculate about what might be the upshot of the whole situation, let me pose this future scenario: a whole society of middle class families living a lower middle class lifestyle, more like a blue collar family whose children don't go to college because the family can't afford it and society can't afford to subsidize tuitions through state scholarships, PELL grants, etc. A less educated society would put our country at a distinct disadvantage.

We would be a society in decline. Maybe we already are but the fog of denial is so thick we can't see it.

To reduce the whole scenario to the cliche that families need to LBYM and save more is to ignore the primary thrust of Warren's analysis-- and would be a position requiring at least as much research as she has provided. So far I haven't seen it here in this thread.
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Old 04-05-2008, 05:22 PM   #48
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I think the premise that most schools in America are crumbling is flawed. I think the "good" schools are mostly just the schools that all the students that were going to be sucessful anyway go to. Here is an article that talks about this:

Yahoo! Personal Finance: Calculators,Money Advice,Guides,& More

I think American parents may be wasting a lot of money trying to afford homes in the "good" schools when the average schools are potentially just as good at teaching.
Unfortunately, in most areas of the country there are only "good" public schools and "awful" public schools. There are no "average" schools anymore. The good schools are in suburban areas, which is everywhere except rural towns and urban cities, which have the awful schools. I've had my kids in California, Missouri, Ohio, and Colorado schools, urban, rural, and surburban and this has been the case. But my ex and I were professors/instructors so perhaps our standards were too high.
Whatever.
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Good lecture but a bit misleading
Old 04-05-2008, 05:36 PM   #49
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Good lecture but a bit misleading

I agree that was informative lecture and there was a lot she said that made sense, and frankly was different than I thought before listening.

However, her clever use of statistics is often misleading. I don't remember the exact numbers but essentially the median household income of a family of 4 went from 42K to just under 70K (in real $) or an increase of more than 50%. This is due to a second worker. (This is consistent with all other information on Household income I've seen.)

She then talks about a bunch of categories of spending that decreased clothing, food, appliances by amounts ranging from 20-50%. However, what she fails to point out is that in real dollars the median expenditures for all of these categories increased, because household income increased faster than purchases decreased. You can see this by looking at the unit sales of items like jeans, microwave ovens, TVs, and package foods.
In short the family of 4 of the 2000s is buying more stuff than the family of the 70s.

This increase amount of stuff has lead to a significantly larger house. She says the median number of rooms increase from 5.8 to 6.1. What she doesn't say is the average (not median) house increase from 1400 sq feet in the 70s to over 2300 sq feet now days. So we are getting bigger houses to hold the more stuff we have. Contrary to we she implies the material prosperity of 2000 family is significantly greater than the 70s.

Now the area which was so eye opening to me was the risk American families are taking to keep up with the Jones. The percentage of fixed cost primarly debt service for car, mortgage, and credit cards is much higher now in than in the 70s. Which means in financial emergency there is much less room for cutting back. (A classic example is the CA couple that worked in the subprime industry who have $10K in monthly fixed income.)
I loved Professor Warren comment that if the families were businesses, the 2000 family looks a lot more likely to go broke.

You combine the higher fixed cost requiring two incomes with twice the chance of a wage earning losing their job and families are in a more pecarious situation. What makes it even worse is the essentially zero (non-retirement) savings. We have turned into a nation of margin buyers!

I somewhat agree with Ladelfina that it is harder to survive nowdays
without two cars and some of the former luxury items that are now necessities.

Still my back of the envelope estimate is that if bought the same amount of stuff that a family in the 70s had, lived in the same size house, and had 2 cars instead of 1, they be able to save much more than 10% of their income. Clearly we have lots of people on the board who are able to do even better than that with 2 incomes.
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Old 04-05-2008, 07:13 PM   #50
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The solution is easy:

Don't have kids.

At least don't have two kids. Not if you can't afford it.

The at-risk people that she's referring to can't afford it, but they either don't know that or don't care.
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Old 04-05-2008, 08:54 PM   #51
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I suspect we'll be hearing a lot of stories about the struggling middle class in the coming months. Here's one. Two incomes. Both laid off.

Subprime vets saw their industry, finances vanish in a flash - Mar. 31, 2008

Edit: oops, there's already a thread on this one....
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Old 04-05-2008, 09:48 PM   #52
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OK, let's say the answer is to become just like France. I could actually get into that. Wine, women, food, and art! And free nannies for all of the oppressed middle class families!

All we have to do is agree to a 48% tax rate. And sucky investment returns. Who's with me?!
Give me an example of a social program that France has and we don't? (well except the free nannies, but believe me that's more anecdotal than the norm despite what Michael Moore wants you to believe). We got SS, we got food stamps, public housing, a reduced version of national healthcare (medicaid and medicare which covers the most expensive of all healthcare services' users, i.e. old folks), unemployment insurance, you name it. The difference is that France and other European countries know that it costs a lot of money to run these programs and tax their people accordingly (by the way there are European countries with higher taxes than France). In America, we just put it on the tab because no one wants to make a choice between low taxes/no social programs and high taxes/social programs. So we adopt the easy low tax/social programs approach to keep everyone happy. But at one point the bill is going to come due and then you can watch your taxes go to 48% too because I don't think that cutting social programs is going to win a lot of support. And it might be coming sooner than you think. Look at Obama's proposal. He wants to raise the top tax bracket to 39%, add an average state income tax of 5% and payroll taxes of about 7% and you get a top tax bracket of 51% for the highest earners. Ignore the payroll taxes and you have a top income tax bracket at 44% (including both Federal and average State income taxes). In France the top income tax bracket is 40%.
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Old 04-05-2008, 09:55 PM   #53
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< What she doesn't say is the average (not median) house increase from 1400 sq feet in the 70s to over 2300 sq feet now days. So we are getting bigger houses to hold the more stuff we have. >

Wait a sec, I thought the average middle class house was 25 years old. How big was the average house in 1983?
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Old 04-05-2008, 10:16 PM   #54
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Give me an example of a social program that France has and we don't?
Mais, bien sur. Well, I'm not French, so I could be making some of this stuff up.

35 hour work week
retirement at age 60
relatively high minimum wage, indexed to inflation
subsidized employment for unemployed youth and others (starving artists don't starve in France!)
subsidized leave of absence if you feel stressed out (well, Holland has this, not sure about France)

My impression is that they lead the way with their safety net. Nobody suffers. Nobody is even a bit uncomfortable. We make our poor and middle class squirm and eat government cheese!

Edit: and related to a point in the lecture, French universities are free. Probably preschool as well.
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Old 04-05-2008, 10:50 PM   #55
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Mais, bien sur. Well, I'm not French, so I could be making some of this stuff up.

35 hour work week
retirement at age 60
relatively high minimum wage, indexed to inflation
subsidized employment for unemployed youth and others (starving artists don't starve in France!)
subsidized leave of absence if you feel stressed out (well, Holland has this, not sure about France)

Ah but you need to keep up with the NEW France. The 35 hour work week is on its way out, retirement age is being pushed up (and by the way in France the date of your retirement is determined not by your age but by the number of years of work, so if you started working at 16, then you can retire earlier). Public servants are losing their privileges too. Minimum wage (which in France is no more a social program than it is in the US) is near 1200 euros, which is close to $1200 if you compare purchasing power. It is true it is indexed on inflation, but on the inflation as calculated by the government and people will tell you that in reality it doesn't keep up with cost of living increases. French artists might not be starving (in the most extreme sense of the word), but living on 447 euros a month (the maximum amount one can receive if no longer covered by unemployment insurance) can hardly be comfortable and might just keep starvation at bay (you can always rely on charitable organizations for food if needed anyways). But do you know a lot of truly starving American artists?

But you make a good point, there is definitely more depth in European social programs than in American ones. My point was that America is often seen as a purely capitalistic country and I just wanted people to realize that there is far less difference between America and Europe than they believe (or care to admit), that's all.

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My impression is that they lead the way with their safety net. Nobody suffers. Nobody is even a bit uncomfortable. We make our poor and middle class squirm and eat government cheese!
Perhaps you should take a trip to France... It could change your mind...
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Old 04-06-2008, 06:36 AM   #56
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This increase amount of stuff has lead to a significantly larger house. She says the median number of rooms increase from 5.8 to 6.1. What she doesn't say is the average (not median) house increase from 1400 sq feet in the 70s to over 2300 sq feet now days. So we are getting bigger houses to hold the more stuff we have. Contrary to we she implies the material prosperity of 2000 family is significantly greater than the 70s.
clif, I would check to see that you are comparing the median (or avg.) of new+old sq. ft. and not just 2300s.f. as a (med./avg.) for NEW construction. I took her number to include the entirety of the housing market.

Please also don't fall into the trap of the average being higher than the median. Bill Gates' house is quite large indeed. As his income skews the avg., so does his house size. Median is probably more informative.

It's true some people may have somewhat more stuff and somewhat more space.. but I have two thoughts on that:
1.) "material prosperity" is not real if it is simply a function of debt
2.) I think you and others here (even me) have a mental picture of the McMansion and the 2 SUVs, etc. that might be more prevalent in our imagination than it is in the US at large. People here on the board are relatively prosperous and so those spendy folks are our neighbors.. maybe we don't "see" the people living in the same old small houses and tenements in Mississippi or the Bronx or Detroit or Ohio. Visiting my sis years ago in LA.. what "stood out" to me were not the occasional Ferarris and Cayennes and Dodge Vipers but the massive number of completely derelict beaters that were still on the roads, held together with duct tape and baling wire. It depends on your pov.. your mental "filter".

Just remembered that we also had a barbershop and a ladies' salon w/in walking distance. Gone now. Oldbabe, thanks for that idyllic snapshot.. maybe it's my age or the area.. but we no longer had milk/bread deliveries (actually a few people still had milk).. some families (not ours) DID have a snack delivery.. big metal tins of "Charles' Chips". These were rigourously kept on top of the refrigerator.

Just thinking of that pattern, though.. imagine the efficiency of one truck going around to deliver daily milk/bread. Sure, a lot of miles.. but far fewer than having everyone get in their car individually to drive to the store. Plus, less need for parking space when you do get to the store. It's CFB's recognition of expenses continuously being offloaded onto the consumer. DIY promoted as cheaper with no regard for externalities. The milk/bread company saves X in not having the truck and driver, so bread in theory costs a few pennies less. But consumers have to chip in X*A in the aggregate to buy more cars and gas. Instead of one truck with 500 gallons of milk and another with 500 loaves of bread, you have 500 cars with one gallon of milk and one loaf of bread each. Stores chip in X*B to buy more land for parking. State (taxpayers) chip in X*C for more roads that lead to more stores. Etc.

Hence, we observe that bread prices have nominally only increased a certain amount. Taken like that, it seems like there's little inflation.
Then we can conveniently blame the middle class person for their "optional" second car and their "voluntarily" increased gas consumption... just to have ACCESS to the loaf of bread. Oy.
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Old 04-06-2008, 06:54 AM   #57
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It seems odd that some are so quick to discount the information. I got the impression for some of Warren's statements that she is a bit liberal. But I believe the information is factual... It is one's interpretation...

She stated that there were fewer low cost starter homes being built today. That is probably true. Plus, if you live in a large metropolitan area... lower cost housing is often in an area of town where you would not want to live (safety reasons) or out so far that the commute is a killer.

That is not an excuse for people making poor financial decisions... but it probably does contribute to people getting in over their heads on houses.

I think all we have to do is look to some of those statistics and see that people are making some fundamental mistakes. It seems that large numbers of people are making poor decisions.

While I am not for turning the US into a socialist type government... there is a problem. I view it as a risk to our economy over the longer duration. It is ok for people to spend... but no one benefits if they over do it. The results of bankruptcy is that the rest of us PAY!
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Old 04-06-2008, 07:14 AM   #58
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clif, I would check to see that you are comparing the median (or avg.) of new+old sq. ft. and not just 2300s.f. as a (med./avg.) for NEW construction. I took her number to include the entirety of the housing market.
clif is comparing the entirety of the housing market....

"The average American home swelled from 983 square feet in 1950 to 2,349 square feet in 2004 -- a 140% increase in size. And everything about them is bigger, from their three- and four-car garages to the professional-grade stoves and refrigerators. In 2004, 43% of new homes had 9-foot ceilings, up from less than 15% in the 1980s."

The swelling McMansion backlash - Buying a House - MSN Real Estate

So Professor Warren may be right that the total number of rooms only increased from 5.8 to 6.1, but she ignored the fact that the SIZE of those rooms has become much bigger. And bigger rooms cost more to build, maintain, furnish, heat, cool, tax, insure, etc.
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Old 04-06-2008, 08:51 AM   #59
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clif is comparing the entirety of the housing market....

"The average American home swelled from 983 square feet in 1950 to 2,349 square feet in 2004 -- a 140% increase in size. And everything about them is bigger, from their three- and four-car garages to the professional-grade stoves and refrigerators. In 2004, 43% of new homes had 9-foot ceilings, up from less than 15% in the 1980s."

The swelling McMansion backlash - Buying a House - MSN Real Estate

So Professor Warren may be right that the total number of rooms only increased from 5.8 to 6.1, but she ignored the fact that the SIZE of those rooms has become much bigger. And bigger rooms cost more to build, maintain, furnish, heat, cool, tax, insure, etc.
Interesting.

My house was built in 1930 and I have many of the construction records that my granddad kept. What you buy today in a house is a little different than what you bought back then.

Some examples of what was spent to build our 1600 sqft house that cost $6000 in 1930 with a 7% mortgage. The house is 2 story. 3 bedroom. 1 1/2 bath. kitchen, living and dining room with a full basement and a detached 2 car garage. Our lot is 50 x 150 and was $1350 extra

Foundation $300, the hole was extra, hand dug by two men and a boy and a horse.
Framing lumber to build the shell $1300
All the wiring in the house (60 amp service) $90
All the light fixtures $88
Coal furnace and ductwork installed $250

There were no appliances, you brought your own. The house had no insulation. The kitchen had 8 feet of counter space and one outlet. Each bedroom only had one outlet, the living room had four. Oak hardwood floors throughout the house and redgum woodwork.

A little different today I would say.
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Old 04-06-2008, 08:54 AM   #60
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sorry guys.. a second MSN article linked from the first cites the 2,349 figure as AVERAGE of NEW construction. I think median of all units new+old is a more coherent figure, since ALL PEOPLE do not live in new homes.

For many homeowners, less is so much more - Improve & Repair - MSN Real Estate
Quote:
Average size of new homes built in various developed countries

Country Sq. feet
United States 2,349
Australia 2,200
New Zealand 1,900
Canada 1,800
Japan 1,000
Ireland 930
U.K. 815
That is not to say that the bigger-home phenom. doesn't exist.. just not at the level that would make it a primary driving force behind the indebtedness and/or lack of financial and personal time flexibility now seen in the whole of the middle class.
That's what Warren is trying to get us to see.
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