Have you ever heard the phrase House poor? These are people who buy the most expensive house they can get whether they can truly afford it or not. Then they end up furnishing it with cheap or nonexistent furniture because they have no extra money. They literally have no monetary margin to afford the inevitable expenses that arise. Oh they may have worked out a budget and they may even stick to that budget. But every last cent that they earn goes out the door to pay the monthly bills. Their credit cards are forever maxed out because when the inevitable car repair, house repair, or medical emergency comes up they have no savings and no other place to turn to to pay for it.
Why would someone willingly choose to be house poor? Well, I can think of one reason that I see often enough. Status.
The first time I ran across the term house poor was in an article detailing the life and trial of the Menendez brothers. Apparently their murdered parents lived in a nice big home in the right neighborhood and to all appearances were affluent. The reporter continued that it wasn’t until one got inside the house that it became obvious they were house poor. Shabby, worn out furniture. Spartan walls, and neglected repairs.
Closer to home, the LTR and I have a friend who is willingly choosing to be house poor. She’s in a great place right now, close to where she works, in a suburb adjacent to where her family currently resides. The house meets all her needs. The neighborhood is solidly middle and lower middle class and fairly well maintained. So what’s the problem? Ah well, this suburb is not quite as posh as the suburb where her family lives. Her new place is located in the most affluent community in the state. Her new house payment is close to triple what she’s currently paying, not to mention the utility bills are higher too. Those rich folk don’t mind paying higher fees if it keeps up appearances. The higher expenses are really stressing her out. Gone are the dinners out with friends, the nice wine, the organic foods, the semi-monthly mani/pedicures. I jokingly told her that she’s back to being a poor college student eating top ramen for dinner. The look of alarm on her face was priceless.
Another friend of mine is buying a new home. Literally, they broke ground on it yesterday. The builder imploded back in 2009, and is now out of bankruptcy and working down their backlog of inventory and lots. This woman is getting all sorts of SWPL doo dads added to this house (for a price), including solar panels, granite counter tops, tile and wood floors, the works. This gal asked me what I thought about her new house and the price she’s getting. Now, I know how much she earns and I have a pretty good idea of her expenses. I went through all the prudent debt to income ratios, the down payment options, etc. and came up with a reasonable price she could expect to afford for a mortgage. Problem is it is about $50,000-$60,000 less than she’s actually being financed for. Granted that’s probably only $300-400 more a month on the mortgage payment. To put that in spending terms, that’ s a car payment for a nice but not extravagant car. I can tell she’s concerned about being house poor, but that hasn’t stopped her from pursuing this new home. If housing prices start falling here in the big city (as they are forecasted to do to the tune of 12%-25%) she could very well find herself upside down and unable to get out of her home for many years to come.
I just don’t see what the point is of buying a house if you end up living a monastic and ascetic life. If all the money goes to pay for the mortgage and upkeep, when is there time to actually live your life? Why choose to slave away for years on end just to have a home you can show off to everyone else? People have been sold this pretty lie that a home is an investment. No, it’s not. It’s a place to live and keep your stuff. It will always be a sink hole for money.
