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Trouble at Home: Did Generation X's nesting mania spark the economic meltdown?

So, there I was, reading about the mortgage-credit crisis for the ka-trillionth time, thinking rancorously: Who are these people who got us in this freaking mess? Why didn’t it occur to them that the banks were dangling fool’s gold in front of them? You could maybe understand naïve, hopeful American dreamers getting sucked in, but what about all those educated, white collar jerks who took out jumbo mortgages with five-year ARMs, and then HELOC-ed themselves to the hilt to finance remodeled kitchens with Subzero refrigerators and soapstone counter-tops? What’s their rebuttal?

Then, as I gazed wistfully about my crappy, ghetto house, where I recently relocated with my two young children ever since I had to sell my beautiful, freshly gut-renovated brownstone in a nice neighborhood before the bank foreclosed on it – because there was no way, given my place in the national financial fiasco, that I was going to be able to afford the jumbo mortgage monthly payments – it came to me, as in the final scene of the 1987 thriller Angel Heart: I am those people.

And now for the denouement: There’s a fair chance that you might be, too. See if the following scenario sounds familiar.

You grew up in the 1970s and 80s, watching Saturday Morning Cartoons, Brady Bunch re-runs and playing with Star Wars and Transformers action figures or Strawberry Shortcake and My Pretty Pony dolls. Your parents got divorced, and when your Mom went to work, she gave you the house keys so that you could let yourself in after school. You helped yourself to snacks like Top Ramen noodles and a stack of Pringles while you watched ABC After School Specials like My Dad lives in a Downtown Hotel and The Boy Who Drank Too Much. When your Mom came home, she was too tired to cook, so it was either TV dinners at home or stuffed potato skins at Houlihans. You saw your Dad every other weekend, and after he bought you more Star Wars stuff, sometimes he’d take you to his single-guy apartment, which looked like the last day of a Macy’s clearance sale. Lunch? Bennigans.

Cut to: you, having a solid career (which you did your own way, without towing the line for anyone), getting married much later than your parents did (their first time, anyway), and having your first baby. Nothing in your life prepared you for how utterly white-light an experience holding that newborn would be. If nothing had ever been all that clear in your life, it was now: You’d do anything for this creature. By now, it was the late 1990s, early 2000s, and maybe you’d gotten at least a little whupped by the NASDAQ crash, or more than a little by the downturn post-9/11. You were freaking: you needed stability, solid ground. You had children.

Then, interest rates dipped, enticing mortgages were unveiled, and the solution materialized like a fairy godmother: a home! Not the psycho-spiritual SRO of your childhood, but a homey home. You’d invest yourself, your money, your family’s financial future – your whole idea of family-ness – in it. You jumped in, head first. You’d always been so self-reliant, so wary of easy schemes that you didn’t see at the time that you were getting in over your head.

This narrative may be kind of harsh and exaggerated, but if any angle in its arc resembles your own, the good news is that you are not alone: You’re a member of Generation X – or at least you act like one, owing to peer influence and life experiences (right, President-Elect Obama?). The bad news is that you, I, and the rest of us may be more responsible for this mortgage meltdown than we’d imagined.

HOME ALONE

Maybe I was born guilty. Or maybe it’s because I still have that old, free-floating complex from childhood (i.e. it’s-my-fault-my-parents-got divorced, etc.). But I think the main reason I’ve had the nag of culpability festering in the back of my brain ever since the housing market collapsed is because, when I was working on the book I wrote about very young children and the marketing industry (attention, holiday shoppers: Buy, Buy Baby: How Consumer Culture Manipulates Parents and Harms Young Minds, Houghton Mifflin: 2007), I learned more than I’d ever wanted to know about Generation X as parents – from the advertising professionals.

As I sat in on marketing seminars hosted in Orlando and Anaheim, I found out that the dirt on us is that the effects of our parents’ collective mass divorces of the 1970s and 1980s are clearly traceable in our behavior as parents now. We may still see ourselves as outsiders, snickering cynics who see through baby boomers’ pretenses. But that’s a big cover-up to hide that we’re big mush-balls underneath. We are completely, utterly attached to our children. Generation Xers, the parents of the majority of young children now, are by all accounts the most devoted to family in American history. And we’ll do whatever we have to do to keep them from having the crappy childhood that we had.

According to marketing research, nearly thirty percent of Generation X parents volunteer at their children’s schools or extracurricular activities. Again, according to marketers, we panic about child-care and preschool, spending more money on them than any other household necessities. We leave the workforce if no decent child-care is available. We sneered at Yuppies’ conspicuous consumption, but credit card market research reveals that we spend twenty percent more on luxury goods than Yuppies ever did – especially if it has anything to do with home. We yearn for home. We’ll spend whatever we have to get it.

But don’t take my word for it: Look at the numbers. The housing statistics from that nesting frenzy of the late ’90s to mid-’00s are a revelation, like a bad holiday trip with the Ghost of Christmas Past. Buckle up.

THE SUN’LL COME OUT

“Understanding Generational Differences in Home Remodeling Behavior,” a landmark study published by the Joint Center for Housing Studies at Harvard University (JCHS) in the Fall of 2005, captures telling data about Gen-X home owners. As an archeological document, it’s an important artifact because it freezes the moment in time just before the housing crash, and might help explain, at least in part, how it happened. “We’re not only better educated than baby boomers, but we made more money, too.”

According to the report, Generation X in 2005 had higher home ownership rates than any previous generation, in spite of the recent housing bubble. In 1983, when older baby boomers were between the ages of thirty and thirty-nine, their aggregate home ownership rate was 60.6 percent; that number dipped slightly a decade later to 55.8 percent for younger baby boomers in their thirties. In 2005, at the same age (between 30-39), 61.4% members of Generation X owned homes.

Why? A major reason, the report pointed out, is that Generation X is much more likely to look at their home as an investment than previous generations, owing largely – you guessed it – to having lived through the ’90s recession, followed by the stock market losses in the early ’00s. For those of us crawling our way out of the wreckage of the dot-bomb period, that’s what made those low- or no-down payment and ARM mortgages so irresistible. Indeed, surveys conducted by the National Association of Realtors show that four out of ten first-time buyers used no-money-down mortgages in 2005 and 2006; the median down payment for first-time buyers in those years was just two percent.

What this seems to mean is that the collective feeling was, basically: screw stocks, invest in a home, pay for it when you get back on your feet. This seemed like a no-brainer for phoenix-like Gen-Xers. After all, in spite of the pronouncement of a much-cited 2004 study of generational differences that Gen-X “went through its all-important, formative years as one of the least parented, least nurtured generations in U.S. history” – and that half of all Gen-X children’s families split, and forty percent were latchkey kids – we’d always not only landed on our feet, but kicked some serious booty, too.

For one thing, we’re not only better educated than baby boomers, but we made more money, too. According to American Housing Survey data collected by the U.S. Census, Generation X entered the housing market in 2003 with median incomes nearly 50% higher than older baby boomers, and $12,000 higher than their most immediate predecessors, the younger baby boom. So what if the housing prices were so high now that we couldn’t afford to buy? “If we use education as a proxy for future and potential wealth,” surmised the JCHS report, “this indicates that members of Generation X carry the same potential for high future earnings.”

Right! That’s just what we were thinking, too. Indeed, according to the General Social Survey (GSS), a sociological pulse-taker of American households conducted by the National Science Foundation since 1972, Generation Xers in 2000 had higher levels of confidence in their own financial situations than any other generation – “an indication,” concluded the Harvard report, “that Gen Xers have more actual or perceived opportunities for upward financial mobility.” Far be it from the banks to have disabused anyone of that notion. Personal anecdote: After signing onto a five-year ARM mortgage in 2002, I remember the loan officer at WAMU telling me and my husband that although we were cash poor now, he could tell that we were the kind of people who would make money in the future. We were the kind of people, he said, that the bank wanted to “invest in.”

ALL I WANTED WAS A PEPSI

Apparently, Gen-Xers didn’t question the banks’ pretzel logic any more than we did our own. We trusted ourselves; the banks trusted us; we trusted the banks. “It’s almost as if we became giddy children, finally getting the apology and consolation prize we’d always secretly hoped for.” Again, so sayeth the numbers. According to the GSS, members of Generation X in 2000 had more faith in the financial industry than previous generations at the same ages. Nearly thirty-four percent of Gen-Xers said they had “a great deal of confidence in banks and financial institutions,” compared with 24.6 percent of older baby boomers and a scant 12.8 percent of younger baby boomers. Evidently, we were so sure of our own phoenix-like capabilities that it didn’t strike us as odd that the banks should be so magically sure of us too.

In a Psychology 101 way, it kind of makes sense. One of the notorious legacies of Generation X’s home-alone childhood is an abiding suspicion of authority. All this has been well-documented, i.e. we hate ass-kissing the boss, so just let us do our thing because we rock as self-starters. But when the whole house bubble started to swell, the dynamic shifted: Enter the banks, as approving parents.

They gave us a home! It’s almost as if we became giddy children, finally getting the apology and consolation prize we’d always secretly hoped for: You didn’t get a real home as a kid, but you worked hard, succeeded on your own steam, and now we’re going to give it to you and your children. The 1980, 1990, and 2000 GSSes reflected our self-satisfaction. A whopping 66.4 percent of Generation X affirmed the statement: “People get ahead through hard work, not luck.” Welcome home. You earned it.

BIG TIME

Now, we were ready to start spending even more. The Harvard report’s analysis was that Generation X’s unprecedented confidence in its own grit, coupled with its equally high trust of banks, would translate into “higher likelihood of investment and consumption,” and further, that “members of Generation X may be more likely to use banks for refinancing activity, leveraging home equity, and generally sustaining high levels of consumption.”

They’re so smart at Harvard. During the housing bubble, Generation X did, indeed, spend more on home remodeling than baby boomers spent when they were of the same age ($2,220 per year, compared with $1,400). We started taking out Home Equity Line of Credit (HELOC) to pay for that remodeling, and the banks let us, because the housing market was so screaming. In 2005, home equity was valued at $9 trillion, having more than doubled in a decade. We banked on it; everybody who owned a house banked on it. Indeed, the Harvard study reported that home equity alone was homeowners’ most important asset, that two thirds had more home equity than stock wealth.

HELP THE AGED

But one of the chief reasons that Generation Xers spent more than other home owners on remodeling was that we bought charming, fixer-uppers – homey homes. According to the Joint Center 2005 research, 31 percent of Generation Xers lived in homes that are at least forty-five years old, compared with twenty-two percent of baby boomers when they were in their thirties. New housing developments? No, thanks – we saw Suburbia.”N ew housing developments? No, thanks – we already saw Poltergeist, E.T., and Suburbia. Dude, we lived it.

The fixer-upper nesting phenomenon wasn’t just limited to the coasts, either. In Spring 2007, Professional Remodeler featured the growth industry in Kirkwood, Missouri, a suburb of St. Louis. The town’s leading construction firm, Riggs Construction, estimated that eighty percent of its business came from Generation X buying up the bigger, older homes in town.

We also spent more because we wanted to be involved in the renovation, invested. Different from previous generations, who typically just deferred to the expertise of a contractor or decorator, Generation X wanted to be architect, decorator, HVAC engineer – or at least dabble in those roles. “Generation Xers want to have a remodeler help them buy rather than sell them,” David Alpert, president of Continuum Marketing Group of Great Falls, Va., a firm that works with remodelers around the country, told Professional Remodeler. “They want to make a selection from a series of choices, but they want the remodeler to help them make the choice more intelligently.”

Not only that, but according to professional home remodeling firm research, Xers depend more on the advice of their peers than earlier generations. Tell me about it. In my Brooklyn neighborhood circa mid-2000, just sitting down in a friend’s kitchen for a cup of coffee while the kids had a play-date basically involved passing your orals in some kind of Restoration Hardware version of dialectical materialism. The questions went along the lines of: “How did you guys seal your poured concrete counters without getting that icky “satin” look?”; “Is it dumb to go with carrera marble because it’s so porous, or do you think stains just make it more homey?”; and “Now, did you have to go somewhere upstate to get your claw-foot re-enameled?” Useful footnotes were: “Those Franke sinks are crazy expensive, but don’t ruin your whole kitchen just because you wanted to save three hundred bucks at the time”; “Go with the Bosch, definitely – it’s so much quieter”; and, “When it came right down to it, I just loved the red knobs on the Wolf.”

By the time you walked out, you’d have the names of at least two really good, semi-reliable general contractors (that’s the best anyone can hope for); the most amazing (but pricey) wood-stripping guy in town; the best outlet for Wolf and Viking ranges; and the truth about Subzero refrigerators. When educated, otherwise grounded people are having conversations like this, are Nero and his violin far off?

YOU MAY FIND YOURSELF

In hindsight, it seems obvious discussions like these were kindling for the HELOC inferno. In hindsight, it also seems obvious (at least to economists) that all those interest-only mortgages might not have ended up being so catastrophic either if people had put more money down on their homes to begin with because there would have been a greater variety of home equity in the whole system. And a lot of other stuff. But these are the technicalities. “This may offer a shot at learning to be an old-fashioned grown-up.”

Much has been written lately about psychology’s effect on the economic crash: low consumer confidence, even how traders in London are feeling after eating lunch when New York is opening. Again, as I sit in my dumpy, little house in Red Hook, Brooklyn – which I can just barely afford to heat – I wonder if it’s all a little closer to home.

During the course of writing Buy, Buy Baby, I found out that my generation – myself included – were in large part responsible for triggering the baby genius industry, and the rampant consumerism that attends it, in spite of our very best intentions for our children and our beliefs as parents. Reviewing the Harvard, U.S. Census, and all the other housing statistics forces me to confront what I’ve been loathe to face ever since the mortgage-credit crunch choked me and everyone else: that it’s d’jà vu all over again.

Of course it would be ridiculously reductive, if not downright grandiose, to suggest that this whole messy monster can be laid at Generation X’s back door. But belt-buckling times invite dark nights of the soul. And I’m looking at it, at the very least, because I can’t afford to go shopping. But I’m also looking at it because I just turned forty, and I’m thinking this may offer an opportunity for me to at least have a shot at learning to be an old-fashioned grown-up.

The last time I had such an Angel Heart-like growth spurt was about twenty years ago, right around the time that the eponymous movie came out. It was at the height of the coke-crack pandemic, and there were a number of well-intentioned but very lame public service announcements circulating to combat it (“Just Say ‘No’!”; “Get High on Life!”). But as a then-teenager of the Less Than Zero East-Coast flavor, there was one that got me at the critical juncture.

There was nothing unusual about the scene at the time: at a party, coked-up, in an upstairs bathroom of the house of someone’s parents who were away. But on this particular night, the radio was on somewhere, and the announcement came through: “If you’re not part of the solution, you’re part of the problem.” For whatever reason, I happened at that moment to be looking in the mirror, and got it right in the face: They’re talking about you. It was just true. I didn’t exactly get high on life, but I got a job, worked my butt off in college, and got my act together in a way that I can honestly be proud of. And I knew I could never do drugs again.

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