the dead end of home ownership

the American dream

I’ve known more than one guy with the following life story: working at a corporate job as a middle manager, married with young-ish kids and settled in normal sized house in an acceptable neighborhood. Maybe the kids are really young, even though he’s in his forties; like me, a lot of men (and women) are waiting until later in life to have kids. The house is comfortable but small. The job is OK but if the guy’s honest with himself he knows he’s not likely to soar to the CEO floor in the 15 or so years of working life he has left to him.

So here’s the question: if you make X dollars at age 40, say, and 40% of your income goes to your mortgage that you took out at age 38 – a 30 year fixed mortgage – and you’re expecting a 5% raise every year (if you’re lucky) – when will you reach the finish line?

I know the common perception is that if you own instead of renting there will come a blissful moment when you burn the mortgage documents and skip off into sunset worry-free. In my mind, two things will be happening in 30 years when my mortgage is paid off that will throw a big monkey wrench in those plans.

Property taxes

Perhaps you live in Cheyenne, Wyoming. If so, your property taxes are the lowest (on average) in America, probably around $1000 per year. That’s $83 per month, a doable figure. However, if you live in places like Garden City, New York, your taxes run closer to $9000 per year, or $750 per month. One thing I can guarantee about both Cheyenne and Garden City that holds equally true for both is that 30 years from now, those taxes will be higher. Will they have grown at a rate faster or slower than your annual raises at work? With the strains looming on the US economy – an enormous national debt, rapidly ageing population, and so on, I’d be willing to bet those taxes will eat up a big chunk of your post-retirement income after you’ve paid off the mortgage.

Shoddy construction

On this point I only have my own limited experience to go on, but I remember laughing out loud every time someone asked me in New Jersey if I expected to pay off my mortgage on my townhouse in 30 years. I laughed because I really didn’t expect my townhouse to last 30 years. We moved in while construction was going on in the community, and I saw how these homes were built: pressboard and 2 by 4s. Not stone, not metal. K. Hovnanian put them up fast, using what (ahem) APPEARED to be workers who might not have been entirely legal citizens. These were not structures built to last. These were not cheap places, either; it was a very expensive gated neighborhood with fancy homes (think elevators installed in the homes, riverfront views, etc.) Most American homes will need substantial and continuous maintenance and repair work in 30 years. So think about that mid-70s guy dealing with a crumbling home. Again, no mortgage, maybe, but those bills can mount up quickly.

…the dead end

I still think you ought to own if you want to own, and you ought to work for a corporation if that’s what twirls your pigtails, but this scenario just looks like a dead end to me. This house I’m in now needs to be my last one, or else I’m going to need to move into a place where I can pay off the mortgage substantially sooner than 30 years or I’ll be working to pay the mortgage (and other costs) into my 80s. If you don’t think that’s a dead end, I don’t know what is. I for one don’t want to be struggling away at age 75 to finally pay off my mortgage just to get stuck in a crumbling house paying exorbitant property taxes. Figuring out how to stay out of this dead end ought to be a high priority for anyone who looks to buy a home in their late 30s or later.