Tuesday, July 27, 2004

Housing Bubble Culture

A theory for why home prices are based on more than interest rates and financial forecasts.
- by Carol Lloyd, special to SF Gate

When the price of something in our culture rises precipitously, we look to economists for explanations. They, in turn, look at a host of what is known as economic indicators -- P/E ratios in stocks, interest rates in housing, shortages in cocoa beans. By analyzing these factors and comparing their relationships over history, our modern-day soothsayers predict the winds of the future. They might conclude that this stock or that pork belly is "overpriced" and "due for correction" or that it's suffering from an out-of-whack economic situation such as a lack of supply. Either way, it all comes down to economics, that enigmatic language of numbers by which we read our global tea leaves.

But can standard economic indicators explain everything when the two-bedroom cottage down the street in Bernal Heights sells for $889,000 with 13 offers? Unless you've been living under a rock instead of a roof, you probably already know that housing prices across the nation -- especially here in the Bay Area -- are at all-time highs.

Yet, as talk of a housing bubble has heated up, I've begun to wonder what came first: housing-bubble economics or bauble-housing culture?

Sure, the economics of housing are central to the surreal estate phenomenon. If the supply of affordable housing in the country were sufficient, there wouldn't be the pressure to drive home prices out of the reach of the average family's income. And if interest rates weren't so low, many home buyers simply couldn't make the mortgage payments on their record-price homes. And if the stock market had not turned so volatile in 2000, fewer home buyers would be eager to sink most of their cash savings into the real estate market.

But what about cultural indicators? Could it be that in this era of war and terrorism, homes mean more -- and therefore cost more? Could it be that in a time when hipsters form "stitch and bitch" knitting circles and read offbeat shelter magazines like Ready Made, when shelter shows like "Queer Eye for the Straight Guy" reach 3.1 million viewers, that home prices reflect not only the value of tax breaks but also that of creature comforts during wartime, not just a lack of alternative investments but a lack of alternative entertainments as well -- not just the desire for shelter, but a shelter for desire?

In other words, might our current culture of homemaking have changed the value of this age-old commodity, the home?

Throughout our recent history, housing booms and nesting obsessions have often gone hand in hand. During the postwar baby boom of the early 1950s, a cult of domesticity coincided with new record levels of home ownership underwritten by government low-interest loans for vets and an abundance of new housing designed for first-time home buyers. Then the domestic scene was a stage for the young housewife -- a place to keep her preoccupied and productive now that she was no longer needed outside the home, working for the war effort. Armed with "The Betty Crocker Cookbook" and perhaps a bachelor's in domestic science or another of the popular higher-education degrees designed for the market in unpaid home labor, the young newlywed raised children, cleaned, cooked and entertained with what we now might characterize as fiendish naïvetè.

It's easy to look back on those days of gingham aprons with matching pot holders and regard the 1950s culture of homemaking as a bit obsessive. In my vintage copy of "Betty Crocker's Easy Guide to Entertaining," the user-friendly title notwithstanding, an entire chapter is devoted to the etiquette of invitations, acceptances and regrets. With maddening exactitude, it specifies when men may be allowed to invite friends over. (Examples: He is a bachelor, his wife has not been able to reach the other man's wife, the wife will immediately follow up on the invitation with the appropriate details.)

Despite such a mania for homemaking propriety, in many ways our own cult of domesticity makes that of the 1950s seem tame. Instead of Betty and her pudding-mix cake recipes, we have Martha Stewart tutoring us in preparing, with professional pastry-chef utensils, elaborate wedding cakes for several hundred guests. Then we had newfangled percolating coffee makers, and now we have built-in espresso machines. Whereas we once bought factory-made playhouses for our little ones, now we spend up to $160,000 on deluxe custom-built Victorian "miniature homes."

Even as the size of the average American family has shrunk from 3.1 in the 1950s to 2.6 now, the homes themselves have only grown with our passion for all things domestic. In the 1950s, the average home was less than 1,000 square feet; by 1973, it had grown to 1,650 square feet; and, by 2002, it had swollen to more than 2,300 square feet. Furthermore, thanks to the recent real estate boom, home buyers now willingly sacrifice more to get these bigger homes -- the ratio of mortgage debt to home equity is at record highs, and home owners increasingly spend a greater percentage of their income on housing.

It's not only the size and cost of our homes that reflects our cultural preoccupation but also increasing attention to "quality." According to Adams, Harkness and Hill, a Boston-based investment company that has created a "Better Homes stock index," sales in premium house- and home-related products -- from furnishings to dishware, from appliances to bedding -- are growing much faster than those of their nonpremium counterparts. The company notes that installation of central air conditioning has more than doubled since 1971. The conclusion? The boom in home improvement and decor will outlive the current real estate boom. The company declares in a 2003 report, "We believe consumer and industry factors will drive continued growth for many years to come, long beyond the eventual end of the recent housing boom and after the media tires of discussing the "nesting trend."

Ever since trend watcher Faith Popcorn coined the term cocooning in 1991, Americans have invested not only more money in their homes but also more of their psychic currency. Now that home ownership has reached a record high of 68.6 percent, the White House Web site is touting this fact as a sign of good times and happy days.

But when a society becomes home obsessed, is it really a sign of a healthy culture, or are we trying to compensate for something we're missing?

"War resonates deeply in our hearts idea of home. We talk of 'hardened shelters' and 'sealed rooms' against attack. Americans are buying gas masks. The fear of terrorism keeps us huddling at home." Faith Popcorn wrote these words in 1991, just after the Gulf War, a war that, compared to our current conflict in Iraq, hardly affected our everyday lives. If our current home ownership and homemaking mania reflects an intensification of the trend Popcorn commented on, the country's mad passion for real estate may be driven by more than the sum of economic factors (madly spinning out of control or successfully driving a recovery, depending on how you see it). It may also be about feelings, fear and all sorts of mysterious movements of the heart that make us yearn to own a place that enlarges our private lives and shields us from our public frailty.

So, next Sunday afternoon, when your eyes glaze over as you read about boring economic indicators that tout the existence or nonexistence of a housing bubble, and you begin instead to think about pruning your rare roses or baking an organic marionberry pie or going hypothetical house hunting for a cottage at the beach or shopping for a flat-screen TV, it may be that these impulses to cultivate a safe and beautiful place are just as significant as the numbers in explaining why we've mortgaged ourselves into oblivion. Culture not only cultivates the mind but also drains our bank accounts, and it doesn't take a degree in economics to understand that.


At 12:18 PM, Anonymous Anonymous said...

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At 12:48 PM, Anonymous Anonymous said...

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