Wednesday, July 08, 2009

Luxury Living Lite

It seems to me that I belong to a very entitled generation when it comes to real estate and extravagant living. The 20-and 30-somethings of today were born in the 70's and 80's, and were therefore too young to remember sky-high interest rates and the accompanying recession that left many teetering on the edge of bankruptcy those decades ago. Our parents, the "Boomers," sheltered most of us from the many truths about their financial situations and the rising costs and unemployment rates that likely affected them.

Then, when we "Gen-Y" folks got to be old enough to actually care about things like real estate and investment, we saw home values rising fast and furiously, thanks to something called a "sub-prime mortgage" and known as the 0/40 in Canada. Really, it was the same thing; the lure of low interest rates and non-existent down payments with lengthy amortizations made mortgages easier to come by, and drove up the demand for homes, which resulted in escalating property values. This happened to coincide with the season when our parents were retiring or finally upgrading into their "dream home," complete with granite countertops and heated flooring. This additional demand once again affected supply values, and home prices reached ridiculous levels.

As we watched this unfold before our naive and impressionable little eyes, we saw many people make money and build huge equity from their real estate investments. We saw them flip homes, upgrade homes, and pocket large amounts of cash in the process. This was glorified on HGTV shows and all over the news.

And, as human nature dictates, we got a little greedy. Our generation wanted a piece of the good life, the prosperous life, and the sort of life that our boomer parents worked 30+ years to earn.

However, we lacked their patience. We didn't want to have to work 30 years "for the man" or scrimp and save before we could own a huge house in the 'burbs or pocket $100K+ from a home bought and sold. We wanted that luxury lifestyle and that profit now. In our entitled thinking, we justified that we deserved to live in large, brand new homes with state-of-the-art stainless steel appliances and Kohler fixtures. We found excuses to explain why we couldn't thrive in a run-down, older bungalow or buy a small condo first. We told ourselves that we'd be wasting money by renting, and we scoffed at the idea of saving a 30% down payment before getting a mortgage.

So, our generation took action to acquire what we felt we deserved. We went out and bought big shiny new houses with all the finest fixins,' even though many of us couldn't afford to pay 10% down, much less 30% on our $300K+ mansion in the newest, trendiest suburbs in town. We stopped thinking about tomorrow, and lived every day like it was our last. We locked in with a low interest rate for 5 years, and in the back of our minds we rested in the assurance that if anything happened, our parents would be able to bail us out.

Some of us actually saw our investment values rise, maybe even significantly, so we borrowed against our equity to keep living the high life: big trips every quarter, state-of-the-art appliances and electronics, luxury SUV's, and brand-name gear for us and our kids. No problem, we thought to ourselves, real estate always goes up in value!

But what happens if 1981 repeats itself in 2011, or 2014? My generation hasn't yet stopped to think about that. We haven't considered the worst-case scenarios: 20% interest rates, massive inflation in food costs, lay-offs or wage freezes or other forms of income loss from our primary (and sometimes only) breadwinner, property value declines in the ballpark of 40%, not to mention unexpected illness, death, or natural disaster. Sure, our university-educated minds may have considered these things on a superficial level, but few of us have actually carefully planned out what we would do should any (or all) of these things occur. In truth, many of us are simply too busy enjoying our open-concept kitchens with the nice marble countertops, and far too occupied with keeping up with our neighbours, to actually take time to plan for economic hardship.

Which brings us to 2009. Massive government bail-outs. Entire industries being decimated or wiped out in favour of outsourcing, and unemployment rates increasing at an alarming pace. Bankruptcies and rising food costs. Natural disasters. Recession. Rising interest rates.

What will happen to us, the Gen-Y's who have never known calamity and hardship of this magnitude, and who have never faced empty cupboards and empty stomachs? How will we fare when our investments lose value, especially when we've been borrowing on our equity and not really paying off our debts? What capacity will we have to make our mortgage payments when lines of credit run dry and our payments double, or even triple, in value?

Those of us who live entitled, who believe we deserve the finest that life has to offer without paying the price to earn it in the first place, will have no leg to stand on when the fruits of our actions yield disaster. We will not be able to run to Mommy and Daddy and expect their help (remember, they have "dream houses" to pay off too) and we certainly won't be able to whine about how we don't "deserve" the troubles that we face.

When we live thinking that we deserve all the material good that life has to offer without paying the price for it, we deserve everything that life has to offer, even if it comes in the form of bankruptcy or foreclosure.

Maybe it will be for the best. Maybe then we will know what it means to be humble and to live humbly. Maybe then we will shake off the entitlement that has diseased our generation. And maybe then, we'll finally figure out that what we "deserve" has nothing to do with material things, and what we "have" has nothing to do with our own abilities or knowledge or works.

PS - Feel free to leave comments, but I'm not interested in a debate, especially if you're just looking to justify your actions and try to convince me (or yourself) that you're right. Especially if you're involved in crazy investment schemes or MLMs, I have no interest in getting into it with you. At the end of the day, you don't answer to me, you answer to God. But no, I'm not interested.