The roadside sign caught my eye as I drove past.
New homes starting in the $300s.
Could it be? Brand new houses that cost less than an airline ticket?
No, of course not.
The 300 on the sign stood for $300,000. A princely sum, but hardly outrageous for real estate.
Still, as the sign got smaller in my rearview mirror, only one thought came to mind.
Wow, that’s a lot of money.
You see, I’m a numbers guy. But I’m also a pragmatist.
When I mowed the lawn growing up, my parents would give me $10. I knew that money could get me two McDonalds quarter pounders.
It was tangible. An hour sweating in the sun with the push mower equaled two tasty burgers.
Years later, with much larger paydays in my present and McDonalds in my past, I can still visualize where my income is going.
Bills and rent are less savory than burgers, but visualization is no less effective.
But $300,000? That’s not tangible. That’s Monopoly money.
I wondered if others reading that roadside sign felt the way I did. I wondered if the sheer volume of money in play blew their mind.
If they did, the sentiment surely didn’t last long.
There are new homes popping up everywhere these days. I see them on my morning run, on my drive to work and on my way to the grocery store.
These homes all hit the market with six figure price tags. Price tags that start with a 300 or a 400. But that doesn’t stop people from scooping them up in a flash.
In many respects, these homeowners are like me.
They work for a living. They have credit cards. They drive Fords and Chevys.
Yet, they have done what I have not. They’ve suspended their disbelief and taken the plunge. They’ve signed on the dotted line for a bank loan that they’ll spend 30 years paying off. All for access to a shiny new property on their own plot of land.
Monopoly money indeed.
The housing market is the most tangible example of a phenomenon that’s taken over our society.
A phenomenon I like to call shell games.
For anyone not familiar with the term, it comes from carnival lore. A midway proprietor would put a ball under one of three hats (the “shells”), and then rotate them around in a dizzying array.
When the motion stopped, carnival goers would try and guess which hat was hiding the ball. Invariably, their guess would be wrong.
Slight of hand is key to an effective shell game. All the movement and misdirection disconnects players from what’s tangible.
That’s why so many participants guess wrong, allowing the proprietor to line their pockets with ease.
The same goes for the housing market and similar types of investments. The illusion is so great, we often lose track of what’s real.
For years, Americans of modest means have been able to sign paperwork granting them keys to a property worth more than their current assets.
It’s like they’re playing poker and telling the world they’re bluffing.
Yet, unlike the carnival game, they still win in the end.
The banking system facilitates this victory, of course. Mortgages give banks some skin in the game, locking homeowners into decades of monthly payments.
By the time that last payment is made, the game is over. The full price has been paid, and the claim to homeownership is completely tangible.
But how often does that scenario actually play out?
It’s hard to find many people under the who’ve lived in a home for 30 years these days. My parents got close — reaching the 26 year mark — before selling theirs.
No, homes are treated like trading chips these days. In the age of Fixer Upper, people are buying houses in hopes of flipping them for profit. Even at the point of purchase, they’re thinking of the impending sale.
That sale could come in five years or ten. Either way, there’s little chance that the homeowner will have actually paid in full by the time they turn the keys over to someone new.
Instead, that homeowner is using the sale as an exit strategy. They’re divesting of their remaining financial obligations, and using the proceeds of the sale to invest in a new property.
It’s a shell game nested inside another shell game, much like a Russian doll.
What’s tangible is insignificant. Numbers on a scoreboard are all that matter.
I don’t own my home. Even as many of my friends become homeowners, I’m happy to maintain the lease on my apartment.
Sometimes, my friends tacitly protest my choice. They tell me that I’m burning equity by delaying homeownership. They remind me that I’m paying a premium for a space I can’t truly call my own.
They have a point. Homeownership has its perks — including the ability to enjoy some peace and quiet. (I know, I’m a grumpy old man at heart.)
But the leasing life has its benefits too — a dedicated maintenance staff and an on-site gym and swimming pool.
Still, all these factors are secondary in my decision.
The biggest reason I remain a renter is that I still haven’t gotten over my aversion to the shell game phenomenon.
Like many, I lived through the Great Recession. And the scars run deep.
I was in college in 2008 Lehman Brothers went under and the government bailed out Wall Street. My friends and I were renting a house off-campus back then. But suddenly, we started seeing foreclosure notices in the mail, addressed to our landlord. We got uneasy.
The landlord told us not to worry, but we weren’t taking any chances. We broke the lease and moved to a new rental home a couple of miles away.
At first, I thought the foreclosure notices we saw that fall were just an exercise in corporate greed. That the banks were treating some college kids’ lives as collateral damage in their never-ending quest to extract more money from homeowners.
Yet, it wasn’t long before I became aware of the growing calamity. The housing bubble had burst and the financial markets had crashed. Foreclosure notices and widespread layoffs were simply a sign of the times.
While we’ve all moved on from those days, the lessons remain vivid as ever. My biggest takeaway from the recession is that dealing in shell games is playing with fire.
So, I don’t.
My investment profile is conservative. I don’t trade stocks. And I still hesitate to take the plunge into homeownership.
Someday, that will change. But only when I have more to offer than my good name or a promissory note.
Is this the best tact to take? Perhaps not.
After all, shell games have solidified their place in our society. And they’ve helped form the modern economy.
Sooner or later, they are inevitable.
Even so, I believe it’s important to grasp on to what’s tangible. To avoid getting too big for our britches, if we can help it.
For practicality helps us keep our promises. It promotes a culture of fairness. It engenders trust and goodwill.
These attributes are far more important than a bigger house, a fancier car or a more robust portfolio. They pay far greater dividends, no matter the state of the market.
So, deal in shell games if you must. But proceed wisely.