The Economics of Housing: My Personal Story

In this episode of the Less House More Moola podcast, the host shares her personal journey through various housing experiences, illustrating the economic lessons learned along the way. From her childhood home built by her parents to navigating the housing market during the Great Recession, she emphasizes the importance of financial resilience and the impact of market fluctuations on home ownership. The conversation also touches on the effects of the pandemic on housing prices and the current state of the market, advocating for a more conservative approach to housing in light of rising costs.

Links referenced

Inflation adjusted housing price history

Dollar housing price history

Go to thetinyhouseadviser.com

Transcript

Less House More Moola Podcast (00:41)
Welcome to Less House More Moola podcast. This week, I wanted to talk about my life story as an economic lesson in housing. Houses have a lot to teach us, and I certainly have learned a lot of lessons over the years from the homes that I have lived in. Really important life lessons, as you might

have gathered by now at this moment in time, at this moment in our economy, I am of the opinion that less house equals more financial resilience. And that is just purely my own life experience as well as what's going on in an inflationary view of housing. I am going to tell my story of housing and economics.

And also refer to two charts from the Federal Reserve. They're actually from the St. Louis Fed, one of which shows the inflationary impact on housing prices. So they've deflated prices based on the consumer price index. So really looking at housing prices over time, if we view them through the lens of what has been going on

in inflation. And the other is straight up dollars median home sales price of houses. And these charts go way back to the 1960s. They're really fun to scroll across and look at the different movements in housing. So I'll definitely be linking that these the median sales price is us census bureau data, department of housing and urban development.

And the inflationary real residential property prices is from the Bank of International Settlements. So those are appropriate citations for these two charts, which I will share with you.

So let's go back. My first experience with housing or the first experience that really made a huge dent in my story was when my parents started building their house around 1980. So I was a very small kid at that point and I remember it being a very exciting time. My parents had returned from overseas. They had been renting for a while and they started to build their own house.

This was something that my family did. My grandparents did this too. They built a lot of their own homes and these were service oriented folks, people that were used to working in order to add value to their lives. And so this just seemed a natural next step for them was to start to build a house.

Now you may have heard me say before, or maybe it's, I've said it on other podcasts that one of my favorite things to this day is a piece of graph paper. And I took up this interest in graph paper. The first time I laid eyes on blueprints, which was when I was that little kid and my parents were starting their house. I remember being really fascinated with the blueprints and the way that it showed the layout of the house.

When I was in high school, I would sit around with a piece of graph paper instead of paying attention in class and sketch out floor plans. And I had a ton of fun designing this tiny house floor plan, which had to be seriously altered when we were able to score a six foot jetted tub. So we had to shrink some other spaces in order to make our giant bathroom in this small space.

I am currently working on floor plan projects for our Colorado cabin, also for the studio greenhouse that we're going to get to eventually here. So you will always find me in a moment of bliss when I can cram it in sitting with a notebook and some graph paper working on floor plans. It's just my favorite thing.

So in 1980, if we look at the median sales price of houses, so this is the real dollar amount, a median home in 1980 was $64,000. That seems amazing and affordable. And yet when we look at what was going on at that time, actually in 1980, we were just coming off some inflationary times

And so it actually probably felt a little bit expensive for my parents to start working on their house. I remember how my parents, both teachers, they got paid monthly. We would go to the Food Lion in rural Virginia and stock up for our groceries on a monthly basis, because that's how they manage their budget. And we would have a $400 grocery cart. I think it was actually two carts for $400.

and we would stock up our shelves for the entire month. And that seems amazing considering how much I spend on groceries today, but that was probably feeling a little expensive for them at that time as they started to build that house. We did a lot of the work ourselves. So there were certainly some contractors that came in, but my grandfather had certain skills and my dad had certain skills and everyone pitched in.

I definitely spent my time on the receiving end of a planer pulling out oak boards that we were using and milling for our flooring. My parents in the 1980s did the style of the time and they used paneling instead of drywall on the walls in the house. So a lot of paneling installation help. I remember definitely learning a lot about

just basic use of tools and how to be helpful and anticipate what's coming next, cleaning up after the work. My favorite thing, sawdust, it has embedded the smell in my mind and definitely always brings me a little bit of joy when I smell sawdust. I would say as a little kid, it was a great experience, most of the time to be in that construction phase.

Now something that also occurred around that time, maybe this was as we see a little bit of a downturn there in inflation. My dad was actually laid off from his job and he remained without full-time employment for a few years. And so we actually lived in the completed basement part of the house before the rest of the house was built, which what came with a temporary type roof.

that ultimately ended up leaking and when we would go out in the evening and come back and the house that the basement that we were living in would have water and so we would be shop vac-ing out water late at night. And so definitely an interesting experience about what I'm comfortable with and what feels like safe and consistent in life. And so I learned a lot of lessons.

from that time. And then when we did resume building on the two additional stories of the house, it was very exciting. For a time the kitchen was in the basement and I remember carrying up trays of food up the stairs on my head, balancing them on a tray. And that was quite my talent at the time. And then when I finally got into my third story or my second story bedroom and got to pick my carpet color,

It was a delight. I had a gigantic bedroom with a dormer and I moved my room around all the time and it was a great place to grow up. I had 10 acres and a beautiful forest to play in and expand my imagination. We heated our house with wood. So that was a lot of house to heat with wood. So there was a lot of wood required. And so most weekends,

Most seasons we were out cutting and stacking firewood. So very bootstraps way to grow up and a lot of important lessons there learned in that house about doing it yourself. And I would say that a lot of the value there that my family created was the do it yourself style. They created that home with their own sweat equity.

And that was an important lesson that maybe I didn't digest at that time, but certainly has served me in other parts of my life.

So from that growing up experience in that house, I went off and joined the military, spent some time in different rentals, living in different places. And when I came back to the U S from Japan and with my first husband, it seemed like the time that the clock was ticking and it was time to buy a house. It was in the ether at that time because this was leading up

to the great recession and at that time buying a house, everybody was getting mortgages and it certainly was something that a lot of people were focused on and talking about. And so when we flash forward on the median sales price, we can look way forward when I was doing the research to get myself ready and saving up my down payment in order to buy my first house. That was around 2007.

And the median price had gone from $64,000 when I was a kid to $257,000. So quite a significant difference. I remember when I was reading the book, Homebuying for Dummies, that there was a little cottage that I was kind of in love with in Virginia where I was at the time. And it was for sale for 160. And I felt like that was modest and reasonable. But when we got to

Got stationed out in Las Vegas, Nevada. Home prices there at the time that we were purchasing, we ended up in the $200,000 range. I don't remember exactly how much we spent, but it was definitely in the low $200,000. But that was just what you got. Your two-bedroom, small track home for $200,000. And now that I look back on it, that doesn't really even feel like that much. But at the time, it seemed very

very risky almost to get to spend that much on a home. But we had our government VA home loans and my husband had consistent income and I was working so we had a two income household and so that was something that we felt like that we could afford.

So then flash forward just a few months and my gosh, the market crashed and that meant that all of a sudden our home value was underwater and so was our marriage. And so there that went everything downhill kind of at the same time. And luckily I was able to get out of that situation, both of them, the marriage and the house unscathed, but nonetheless, that house ended up eventually being short sold.

and taught me a very valuable lesson about being house poor and also timing of market purchases. And I took that lesson as I moved forward in life. And the next house that I bought, I definitely had digested that and made a really significantly different decision there.

However, I think it's important to point out that these market fluctuations that we are talking about are not something that any of us can anticipate and we are just takers of the market. And basically we are subject to whatever is going on in the market at the moment in which we are moving or getting married or having children or getting divorced or, you know, living our lives, right? We, when it comes to housing are often just stuck.

with the whatever is available at that time. And that's what we see today that potential home buyers are stuck with high interest rates and extremely high home prices. And so you make the best decision that you can with the information that you have at the time, as I like to say. So today, if we can think critically about where we are in terms of housing prices and be a little bit more aware, we have the opportunity to choose something different.

if that suits us and if we can make that work for us and therefore perhaps avoid buying at high market prices, high interest rates, making ourselves subject to being at risk of being stuck in a home if prices were to change or being stuck if our jobs are to change or just feeling stressed and anxious about how much we have in a mortgage, including of course, principal interest.

taxes and insurance, which we're all spending more and more on. So this is a very good time to reflect. So as I mentioned in 1980, prices maybe had gone up a little bit from where they had been. And then of course, when I purchased my house in 2007, the market was way high when adjusted for inflation. So if we look at the 2007,

timeframe, the federal reserve on their real residential property prices states that in 2007, the index registers 146. So here are a little benchmark that they reference is a $100 price point or sort of our base case is 2010. Obviously that has happened in other times, 2001 it was in that

100 base case scenario, but in 2007, almost 150 % So very significantly different pricing at that time. And as we all know from our history books, that this is where the market was overinflated because of too many mortgages of too high risk and a lot of other things going on behind the scenes. And so then the housing price

prices really plummeted a lot. If you look at especially the high impact areas like where I was in Las Vegas, Nevada, by the time that that bottom of that market was reached though, I was in Florida and Eric and I were together and looking for our first home purchase together. And so we were able to purchase a home in foreclosure.

And we were able to get that at a very discounted price. So we spent about $60,000. So the price from 1980, that's what we got in 2012. Now that house was in, it was not livable. had no floors. It had no appliances. It had gigantic holes in the wall. It was a hot mess, but

We knew that we could bring our skills to the table in order to increase the value of that house and bring that house up to a good condition for living. We actually had to do a lot of work to the house prior to even being able to get financing on it because the lender wouldn't even lend on a house without appliances and no flooring. So we had to do some pre-work.

in order to get the house, even through the financing hurdle. So that was a very interesting adventure in housing. And we were, we learned a lot from that experience. I brought into that purchase my lesson around not being house poor, about not buying at top of market around kind of making a decision to

buy lower than what maybe we could have afforded in order to make our, give ourselves some financial cushion. So we didn't feel so stressed out. Maybe I was pessimistic at the time about things. We're all pessimistic in times of downturn, I would say. And so I was being very careful with decision-making. And so that house ultimately served us really well. It got a lot of great

repurposed building materials from jobs that Eric was working on. We obviously bought a lot of things to repair that house and that house ultimately was a huge investment for us when we sold out of the things that we owned in order to move into the tiny house. That home really yielded us a good amount of value for our financial security and it ultimately was a very lucky move.

And that's the thing is that I had no idea back in 2012 that we were going to want to sell that property in 2022 and that we were going to move into a tiny house and that we were going to need the cash from that house. had no crystal ball, no vision that far ahead to know. And it just simply was a lucky timing that we got the house for that price. But it also was a lot of sweat equity and a lot of work in order to

fix up every piece of that property. And we did that as our hobbies together, I guess you would say. So a great property that we really enjoyed and that ultimately yielded us some cushion later on down the line. Of course, now if you look at the inflation adjusted, the CPI adjusted numbers, you'll see that in 2012, housing prices,

really only about $30,000 more than they were at the time that things really crashed. So you see kind of a steep decline in 2009 to 208K and then by 2012 they're at 238K. So really when you think about the actual median sales price, even though we all know that the housing market crashed and that house prices really declined.

On average, there wasn't that significant of a difference, but you definitely see the difference in the CPI adjusted rate. So once you get to 2011, 2012 house prices are at 94. So below that 100 base case, um, a line in the sand that has been provided on this residential report. So down 50%, right? Significantly different.

So for six years, we were in that little modest house that we purchased that we really enjoyed and probably would have stayed in forever. But you know, I got a little high on my horse. My career was progressing. This is what happens to us, right? This is lifestyle creep. This is what I talked about last week is that when we start to do better for ourselves, we start to want more for ourselves. And so we wanted to go from our 1100 square foot house to

something maybe larger. don't think it was really so much about the house as it was about the land. My country girl was coming out. I had been definitely spending too much time on Instagram looking at mini donkeys. so additional acreage and some more privacy seemed really, really important in 2018. And I felt like I was going to be able to afford it and that my career demanded that I deserved it. And so off we went to a much more expensive home.

In fact, was the first time that I ever purchased a home above the average purchase price or the average sales price. So in 2018, average prices were at about $315,000, but we bought more house than that, more land than that. And actually not in the best condition either, because that house was

had some significantly deferred maintenance. was in its original build condition from the 1980s. The land had been totally abandoned from a maintenance perspective. And so then we spent the next five years renovating that house and fixing up that property. And ultimately when we sold that house just in 2024, we had a significant gain on it.

But when I think about every hour that we spent and all of the materials that were brought to that property, there was a lot of labor and materials that were brought to make that property more valuable. And if we had left that house in the condition that it was in, I'm not a hundred percent sure that we would have gotten nearly as much appreciation on that property. It was the same with the house that we bought in 2012. Had we left that house in its original condition that we found it in,

then we definitely would not have seen the appreciation that we saw there. So markets can only take us so far. A lot of times it's about our own efforts that actually get us gains, whether that's in building a business or building a house or having personal relationships. Everything is about the effort that we put in. And that was the case with that property.

So we all know what happened after the pandemic. my gosh, houses, you know, and prices just went through the roof. Everyone who was in, or not everyone, but people in urban areas that were able to work remotely wanted to move out and get some more space. It was just the ultimate reshuffle. so places that had been expensive, lost value and places that had been cheap became very expensive.

And really everything shifted a lot for the next two years. And so as I was shifting and we were planning our move to our tiny house after the pandemic, we adjusted our expectations for the future. Then we had, we developed some expectations of what the sales price would be for the house that we were living in. And that, that pricing

moved down as we got closer and closer to our move date. So the housing market really peaked in 2022 as we can see here on this median sales price. 2022 average median price was $442 and then by the end of 2024 it was $419. oh sorry, Q3 of 2022 is $438. So definitely a little bit of decline there.

And so once again, at the whim of the market or at the mercy of the market, our house was sold in Q4 of 2024 at a price significantly lower than we had thought that we would get from what we understood from 2022. So we are all subject to these whims, these ups and downs to changes of the market based on the timing of when things are available. And when it comes to homes,

You have a lot of eggs in one, just one basket. And so depending on what's going on with insurance availability or net migration numbers or people's job losses or what have you, it can be really challenging or easy. can be a miracle or it can be a nightmare to buy or sell a house.

And yet there is so much of ourselves that goes into that. And there is so much of ourselves that is needed to keep and maintain that house over time. So I think that it is very interesting to explore the entirety of housing market history, especially in reference to this moment where when we look at the CPI adjusted consumer price index,

Inflation adjusted numbers, know that at the end of 2024, our Q3 of 2024, housing prices one on the index with baseline, our base case being 100, of course, 2024 housing prices are 161. So much more expensive than just kind of baseline numbers.

So in fact, even 10 points more expensive than they were before the market crash So from an index perspective, housing is very expensive. We've heard about it on the news a million times. People are stuck in their houses because interest rates are high and so they don't sell. And so then there's fewer houses on the market and builders haven't been building houses since the great recession in fast enough numbers for the population growth. So

For sure. We know all the reasons why house housing prices are high, but at this moment in time, buying a house at 161 on the index means that you are spending a lot for that shelter and potentially putting yourself at risk of unknown adventures in the future, unknown things about our jobs, unknown things about the market, unknown things about the housing market.

And in my opinion, as you know, from this podcast, I think that it is best to buy less, have less, and therefore have more time and more of your own energy left for other things that are far more important.

Kind of makes me wonder what it would have been like in 1980 if my parents had maybe tried to build a smaller more modest home if that would have left them in a better position in the long run if I had stayed in our more modest home instead of deciding that an upgrade was needed there's a lot of decisions that we make and ultimately coming back to

a more conservative approach to housing at this moment of such extreme housing cost feels very good for me.

So I hope that this little exploration of the history of housing prices going way back, we went back in my story back to 1980 and then looking forward both from a real or inflation adjusted index perspective and from a flat dollar amount was helpful in thinking about lessons that you may have learned.

from your housing experience. And this has been definitely a full journey for me both in picking something less expensive on a couple of occasions, picking stuff too expensive on a couple of occasions, but always with the feeling that there was work that could add value and then I could bring things to the table to add value.

I have learned such wonderful lessons and have such great memories from all of my houses. And this one is no exception. The tiny house is a great story to tell. And so I have really enjoyed being here. And if you are interested in moving in this direction of tiny or alternative living, don't forget that you can schedule time with me by going to thetinyhouseadviser.com.

And I'll be happy to chat with you about what your vision is for the future. Thank you for joining me this week on Less House More Moola podcast and my economics of housing life story.