I live in southern California, which is one of the more expensive parts of the country with regard to cost of living. For reasons I won't get into here, I've been fascinated with trying to figure out how the heck anyone here affords, well, pretty much anything.
For instance, the median home price in southern California last month was $484,000. (In my county, it was slightly higher; in my zip code, it was higher again.) In fact, I was driving by a new housing development the other day and my son and I laughed out loud because the sign said "from the low 1 millions". It's just hard for me to think of anything over 1 million dollars being "low", but I digress.
So, here's the thing: I was looking at some data that said that the average new mortgage (not counting taxes, insurance, HOA fees, and all the other add-ons) in soCal is $2,258. (How are people affording $484,000 homes with a $2,258 mortgage? Big down payments, collosal equity cash-outs on prior homes, or black magic, I guess.)
Anyway, here's the interesting thing: adjusted for inflation, mortgage payments are 9.8% higher than they were in 1989 (the peak of the last housing bubble). So people pay just shy of 10% more per month - again, adjusted for inflation - for mortgages than they did 18 years ago. They also appear to pay more for gas than they did 18 years ago (also
adjusted for inflation, if this source can be trusted). And we've got mobile phones, internet service, health club memberships, and $4 lattes. So, my question is simple: What the heck are we spending
less on so that we can afford all of this?
Clearly, we are
saving less. The national savings rate was once 11.1% and it is reported to now actually be a negative number, so maybe there's my answer. After all, the money has to come from somewhere.
I continue to try to not be an idiot with my money: avoid dumb debt (in other words, the kind that doesn't prove to be tax-deductible) as best I can, try not to spend more than I should, pay cash for everything, and throw money in my 401k and 403b every month. All of that seems like a good long term strategy, although I'm not going to be rich by any objective measure. I just wonder how the heck our society can maintain this kind of spending long term. I mean, don't we all have to retire at some point?