Home Is Where The Heart Is, And Also The Collateral
A Friday chat about the advisability of romantic notions of real estate and home equity loans
ESTER: How romantic is our connection to our homes, or should it be? MarketWatch claims that Millennials are pragmatic, more than previous generations were, and more likely to view real estate as an investment.
By Millennials are often described as prioritizing leisure and entertainment, but many are going into debt to fund them…www.marketwatch.com
But to me at least Katie Couric seems a little silly in this Times piece taking the opposite side and cuddling up to her new East Hampton house like it took her to a middle school dance.
"I liked that it was spacious, but unpretentious. It looks like a cottage in front, but kind of grows in the back." The…www.nytimes.com
NICOLE: Have you read Meghan Daum’s Life Would Be Perfect If I Lived In That House??? Because I feel like that book explores both questions.
ESTER: Have I read Meghan Daum. I am an alternate universe Meghan Daum. Not that she knows that.
NICOLE: But you’re not asking me what Meghan Daum thinks, so I’ll tell you what I think: since I don’t have enough money to view real estate as an investment, and since I’ve never rented an apartment worth cuddling up to, I view my home as primarily pragmatic. Can I sleep in it? Can I afford it? How often do I get woken up in the middle of the night by the couple living above me screaming at each other ONCE AGAIN? (Last night. Again.)
Maybe I try to ignore my home. Ugh. How about you?
ESTER: Wait, but you’ve moved into an adorable 1 BR that’s all yours, and you were really investing in decorating and personalizing and, you know, snuggling up to it, I thought. Are you saying that even now your relationship is purely transactional?
My Ikea furniture arrived at the end of last week — if you haven’t been following the apartmenting story, I recently…thebillfold.com
NICOLE: I think “really investing” is relative. I was also buying the least expensive furniture items I could find. I already have a note in my to-do file to write a piece on how much my super-cheap Ikea couch has fallen apart in just one year. It pains me that I have to wait two more months to write it. It might even fall apart more by then, though, so that’ll be a better story.
Let me rephrase: I view my current 1-bedroom as a temporary home. It is great for now. It is a very pragmatic choice for now. If I had to live here forever, that would be disappointing.
ESTER: That’s fair. But I love my current apartment — yes, love! — though I still wouldn’t want to be here forever. Odds are I won’t even be here this time next year. Can’t a relationship be great and temporary at the same time? Like Before Sunrise? Back when the characters didn’t know what awaited them, at least? Or maybe that’s not a great example :)
NICOLE: The temporary relationship that spawned two sequels. I do think a relationship can be great and temporary. I would really hesitate to say that the place I’m in right now is that kind of relationship. In the language of dating, I can do better. I just have to earn a little more money first.
ESTER: I guess it’s kind of a matter of figuring out what you’re worth and how to give yourself that. The problem with using the language of love to discuss a financial arrangement presents itself pretty quickly: what to do when you do realize you deserve or are worth more? To jettison a romantic partner because, once you start earning more, you know you could do better seems perhaps cruel, but apartments or houses don’t have feelings. They won’t be hurt to go back on the open market.
NICOLE: Apartments often significantly increase in value when they’re back on the open market, too.
ESTER: In my corner of the world, they surely do. But then, people often increase in value on the open market while they’re in relationships, too.
Another thing the MarketWatch article points out is that young people are more likely to take out home equity loans for non-emergencies, such as vacations, partly because of the now well-established Millennial resistance to credit cards. A home equity loan can be a cheaper way to access funds.
Borrowing against a home can be a less expensive way to attain funds than credit cards. The average interest rate on a home-equity loan was 4.88% for the week ending Aug. 17, according to Bankrate.com; the average rate on a home-equity line of credit was 4.75%. The average credit-card rate was 16.1%. Interest on home-equity loans is also tax deductible, said TJ Freeborn, spokeswoman for Discover Home Equity Loans.
It’s also risky, though, according to the experts MW spoke to, who basically begged young people to reconsider: “‘Home-equity loans should never be used for something like a vacation or other short-term wants.’”
NICOLE: But a vacation isn’t always a short-term want. Those Before Sunrise people went on vacation and they got TWO SEQUELS. A lifetime together.
NICOLE: Point being that finding an interest rate that is significantly lower than a credit card interest rate feels financially responsible.
ESTER: Yeah. Plus, we’re vocally pro-vacation around here. Too many workers aren’t taking their time off at all. It looks like at least some young people are resisting that trend and finding unorthodox ways to finance their adventures. I wouldn’t go so far as to advise it, as a strategy, but I am not as censorious or as shocked as the MW experts.
NICOLE: I’m a little surprised they’re using home equity instead of a credit card with a 0% intro interest rate, which is how I have financed some of my vacations. No interest is even better than 4.88% interest!
ESTER: There are better ways to go than borrowing against the value of your home. Especially since, as MW points out, homes can lose value, leaving owners stranded.
“It’s because people took money out of their homes that they went underwater,” said Deidre Campbell, global chair of the financial services sector for Edelman, a communications marketing firm that has done research on millennials and money. When housing prices fell during the last housing crash, some who took money out of their homes ended up owing more than the homes were worth — leading to a rise in foreclosures and short sales.
But at least two of the other top reasons young people borrowed against the value of their homes were more in line with I would have expected: emergencies (42%, just a hair lower than the 43% who were taking trips to Fiji) and medical bills, which I’d also call emergencies (36%). If you throw the emergencies and the medical bills into a category together, you’d get a very different figure and a very different story. Turns out 79% of young people who take out home equity loans do so to cover either emergencies or health care needs.
Leading with that though wouldn’t help companies keep painting a picture of Millennials as leisure- and self-obsessed. And serial killers (of industries).
On any given week, you're likely to come across a report blaming Millennials for "killing" something - industries…www.attn.com
NICOLE: It’s the sort of thing where I’d love more data: how much did those people spend on their vacations, how quickly did they repay the funds, etc.
ESTER: For the record, we have not done it, though our financial advisor brought it up as an option to consider when we were trying to figure out how to get by as an expanding family on a very reduced set of incomes. She didn’t recommend it, and we didn’t pursue it, but it was nice to know that it was there as a possibility. That we wouldn’t have to sell our place altogether in order to benefit from it, monetarily.
NICOLE: That is, after all, one of the big reasons to buy. You have this huge chunk of value that you can use, whether you’re taking out a loan or moving into a smaller place and renting your home, or whatever.
But we haven’t really discussed the Katie Couric angle, so I’ll ask: did you know, when you found it, that your home was The One?
“I do think there’s a certain kind of chemistry between a house and an owner,” said Ms. Couric, 59, the global news anchor for Yahoo, who just started a podcast and who is the executive producer and host of a National Geographic Channel documentary on gender. “You walk in and you can kind of envision your life there. It’s like a first date. You know in the first 30 seconds. I thought, ‘This could be a nice, happy place for my family.’ ”
ESTER: The honest answer is yes. (Can I blame astrology? I’m a Cancer. We’re supposed to be like this with our homes.) I’ve handled the real estate stuff for Ben and me, primarily, and that’s because I am both ruthless about searching until I find the right place and also for knowing instinctively when I have found the right place and we can stop looking. I was that way with rentals and it worked out when we were buying, too. I did feel “chemistry” between myself and this apartment. I knew Ben would as well and he did. Sometimes a place just feels right. Like home. But I would not go on record about it in such flowery language.
NICOLE: I have not found that place yet, although I did know when I saw my current apartment that this could be home for now. It had a bedroom and a kitchen, which I knew I wanted, and a few details like a hallway and a coat closet that I really loved.
ESTER: Home for now is not to be underestimated. That’s really important. Anyway, give Katie Couric a few years and her East Hampton house might well be on the market again. Often love, especially love at first sight, is for now too.