Everyone knows that the North American economy is in for some lean times, and there are three ways in which the general population, especially in the US, have reacted to these more austere times. There are those who have started to tighten their belts and re-examined all aspects of their spending (and saving) and adjusted accordingly. There is the second camp who have put on the blinders and pray that this mess all goes away..... soon. They are unlikely to curb spending, partly because they are addicted to consumerism and partly because they think it beneath them to lower their standards. Not unlike residents who ignore hurricane evacuation warnings, they hope that they will be able to ride out the storm. The third camp sits somewhere in between, making small changes to their spending patterns. Regardless of which camp one falls into, it is hard to imagine anyone having escaped unscathed in some way or another. Whether it's one's home, job, retirement savings, investment portfolio, small business or daily expenses, we have and will continue to feel its effects. The silver lining on this dark cloud is that it may, finally, be the impetus for North American society to review its values and priorities, and in the process, become less materialistic and more values-oriented and community-minded. And by so doing, also maximizing their dollars by spending less.
Let's start with what has caused all this - real estate and the accompanying purchases/expenses related to home ownership, thereby straining mortgage loans, credit cards and lines of credit. Home ownership is the cornerstone of the American Dream, and usually the largest purchase and (hopefully still) asset in one's personal balance sheet. There's nothing wrong with aspiring to have a piece of land that you can call your own. Unlike our European counterparts, the aspiration towards home ownership is more ingrained into the North American psyche. Home ownership rates are markedly higher on this continent versus across the pond. Where we have gotten ourselves into trouble is the excesses that have accompanied home ownership. In many other parts of the world, houses tend to be small whereas the trend in North America over the past few decades has been to build super-sized single-family dwellings, hence the term McMansions. These seem to be prevalent in the southern states, most notably in the big-is-everything state of Texas.
Whether the purchase of a trophy home is a signal to everyone that you have made it, or merely to keep up with the Jones, the future reality is that a home of this size (along with all the accessories) will be increasingly looked upon as being largely unnecessary and will start to become obsolete as homeowners and buyers re-evaluate their priorities, given the current financial and environmental climate. Gourmet kitchens for families that don't cook or entertain much, formal living rooms that rarely get used, three-car garages for people with only two cars. The cost of accessorizing, heating, landscaping, maintaining and paying and property taxes alone should be a red flag to home owners that these monsters will suck the life out of your savings account.
This lesson has come too late for all of those homeowners whose houses are now under foreclosure. While one's first thoughts may be that those who over-extended themselves were from the lower-income sector of the population, that is far from the case. Look at cities like Phoenix, Miami, Las Vegas and many communities in California where many of those families losing their homes are middle-class, well-paid, educated white collar workers.
In the 1970s, the average home in the U.S. housed 3.14 occupants, and was 1,520 square feet in size. By the end of the century, that had increased to an average of 2,225 feet, even though the numbers of occupants declined to 2.59 per household. But the tide has been shifting in the past few years, as baby boomers started to realize that they did not need to live in a cavernous, half-empty mansion, nor wanted to expend the energy and expense for the upkeep of them. Progressive communities such as San Francisco are limiting the size of homes, making building permits for monster homes increasingly difficult to obtain. Increasing numbers of home builders are emphasizing quality (finishing and detail) over quantity (size of the home).
The average millionaire in America has lived in a modest home usually in the same unpretentious neighbourhood for 20 years, with little or no mortgage debt. Read about it in the book "The Millionaire Next Door". Those are the ones who may be least affected by this crisis, unlike the people who may live in flashy homes and have luxury cars in their driveway but are a few months away from having the bank foreclose on their home and repo their car.
My wish is that North Americans follow the lead of the Europeans. Instead of cocooning themselves in their huge houses, do what the Europeans do. Live in smaller homes and spend more of their time and income in their communities - enjoying life by leaving their homes to meet friends and families for coffee, a drink or dinner in town. Stroll the park instead of your backyard. Hopefully, my wish comes true.
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