Mark Gilroy

The thinking goes like this: buy a starter house, fix it up, leverage the improvements and appreciation that have increased your equity stake, sell it, and then sew the proceeds into buying a bigger and better house; repeat those same steps with your new house to secure your next upgrade; repeat until sometime in your mid-thirties to late-forties at the oldest, buy your dream house with terms that insure it will be paid off no later than the day you retire, thus eliminating and in essence “fixing” one of the biggest variable expenses at retirement age, when odds are your income will go down or be eroded by cost of living adjustments.

Even as America got mobile and people cris-crossed the country with moves, the above scenario worked because of a persistent and unrelenting appreciation of home values. A transitional lifestyle might create a few lateral side trails, but the assumed destination has been the same: a home owned free and clear to live in — or to sell in order to pay cash for a downsized home (while pocketing the proceeds) or in a more desired retirement location.

Something quietly shifted in the equation that is a direct corollary to the boom in the use of consumer credit as a way of life. Home prices continued to rise well beyond the inflation rate, thus increasing equity, which is another way of saying, “wealth.” But rather than letting the home nest egg grow, we turned this windfall into a new revenue stream for living expenses, usually by refinancing an entire mortgage with debt added in or by taking a second mortgage(s) to pay off credit debt rather than to do home improvements, another traditional way to increase equity.

It’s been said that retirement should not mean no more work — idleness is bad for your health — but rather it should lead to the ability to do whatever work you want, ranging from volunteerism to a second career.

A few of the potential impacts on our future in light of the subprime crisis and ensuing loss of home values include:

* we may have to work more years full or part-time than we planned because part
of our retirement package has been damaged;

* it’s tougher to move — unless a company is guaranteeing the sell of your home (and a lot of companies have been forced to eliminate this program) — and watch your home sit on the market; even if there are great deals where we want to move, most of us can’t afford to buy without first selling;

* with less “wealth” we don’t have as much credit available to spend on those goods and services outside our normal income stream — which will hurt the easy-credit-fueled economy;

* you might not be able to move where you want to at retirement age — not all regions are equally impacted by the subprime crisis in relation to home values; there’s a reason small “ghost towns” in areas of the country that have experienced
population loss for decades are filling back up — cheap mortgages.

Will home values bounce back? I believe the answer is yes. But I think it’s going to take a few years. There seems to be too much inventory with so many people insisting on building new homes. But new house starts are finally going to slow down, which will be one more stressor on an already stressed economy, but which is required to tighten the housing supply and raise prices. How can I be so sure? Simple. If it costs $130 per square foot to build a new home and it costs $90 per square foot to buy an existing home less than 10 years old, home buyers are going to figure ways to freshen up and personalize the existing inventory. The per square foot cost gap is at its highest ever on a national aggregate.

As someone who has benefited tremendously from the appreciation model — and then taken an “equity beating” during a recent move (that included building a new home) — I am realistic but optimistic that owning a home still needs to be a key strategy in securing your best financial future. Obviously, our future, financial and otherwise, is not just up to us, but I’ll throw out a couple modest suggestions:

1. Get on a schedule to pay off your house before retirement. If you aren’t familiar with the simple little secret of making double principal payments, which will allow you to cut your 30-year mortgage in half, visit any reputable financial website to learn how — it’s not nearly as daunting as it sounds. If you’ve elected one of the dreaded interest-only loans, put a principal payment into your monthly automatic payment schedule and start paying down — yesterday.

2. Don’t treat appreciation as a revenue stream but rather a long term investment — retirement. Second mortgages and refinancing as an ongoing strategy to eliminate debt needs to be eliminated.

3. Don’t put your eggs in one basket — your retirement nest egg should be a diversified program with IRAs, 401ks, Social Security, personal savings and investments, company retirement plans, ideas for post-retirement income, AND a home that is paid for!

4. Get bad spending habits under control. Enough said.

5. Outgrow your problems. To have more, you have to become more. Don’t float along in life, make a plan and build disciplines in your life for growing emotionally, socially, mentally, and most of all, spiritually.

Reading has declined not only among the poorly educated, according to a report by the National Endowment for the Arts. In 1982, 82 percent of college graduates read novels or poems for pleasure; two decades later, only 67 percent did. And more than 40 percent of Americans under 44 did not read a single book – fiction or nonfiction – over the course of a year. The proportion of 17-year-olds who read nothing more than doubled between 1984 and 2004. This time period, of course, encompasses the rise of personal computers, Web surfing and video games.

Now there are all sorts of arguments on what constitutes learning and intelligence and that it is possible that an antiquated educational system imposes and over emphasizes book-based activity and testing as true indicators of intelligence.

For an argument on the efficacy of reading over video and other new media forms (and why “experts” who recommend videos for babies are crazy), visit Jacoby’s article and I’ll let her do the heavier intellectual lifting. (I’ve got to start reading more.)

I’ll simply cite an inspirational morsel of wisdom from a friend and one of my favorite people in the world, Charlie “Tremendous” Jones:

You are the same today as you’re going to be in five years except for two things, the people you meet and the books you read.

He shifts the discussion beyond the realm of intelligence to encompass personal change and growth — including an active thought life through books. (He also makes a great case that if you want to be bright and intelligent, you need to start hanging out with bright and intelligent people — and avoiding those with the opposite characteristics. Again, that’s another day and another blog!)

One of the most enduring complaints in life is that the rich get richer and the poor get poorer. Unfortunately, that really does seem to be the case in regard to the most precious commodity in today’s global intelligence society; intellectual capital.

Not a single book in the past year? Not even one? I’m sure that some individuals who fall in that category really are alert and aware — but how many? And I’m positive that some of us who read a lot of books might still fall into the numbed (and dumbed), dazed, and preoccupied category of the mentally saturated who are decently infotained — but not really engaged in the issues of our day with the thoughtfulness and introspection that can only come when you actually know a few things that you can bring to the conversation.

Whatever import you wish to put on actual books — I learn in other ways — I’ll simply agree and say “fine, have at it; whatever works for you.” But for the person who thinks he or she has arrived and doesn’t need a plan for lifelong learning, I’ll quote the great educator and philosopher John Dewey:

The aim of education is to enable individuals to continue their education …

Or how about the words of Thomas Jefferson:

I know of no safe repository of the ultimate power of society but people. And if we think them not enlightened enough, the remedy is not to take the power from them, but to inform them by education.

The proliferatin of the written word made Jefferson’s admonition easily accessible to all of us — with or without help from government.

Is America getting dumber and does it matter? I’m not sure but I think there’s a special on E! that answers that question that I’ll try to catch tonight.