Mark McHugh

“Shut-up and Eat Your Paint Chips, Kid” – Miseducating America

In Open Thread on Monday, September 13, 2010 at 1:49 pm

Without question, the best way to make people love you politically is to throw Tootsie rolls into the crowd. In lieu of sugary treats, making an impassioned plea for education is a close second. No one wants to see their kid grow up to be a potato head, right?

Today we’ll be exploring the mathematics behind the US housing market over the last thirty years to determine how smart we really want our kids to be. If you can successfully complete (or at least understand) the accompanying quiz you’ll have a more thorough understanding of economic realities than every Ivy League professor (including Nobel Laureates) active in government and mainstream media.

Question #1 – Joe and Mary Twelvepack, an average American couple, buy the average American home in 1980. They pay the average American price ($76,400) and take out the average American mortgage. 29 years later, they sell the home to another couple for the 2009 average American price of $270,900. How much did they profit from the sale (assume the mortgage has been paid in full)?

 A: If you said $194,500 ride the pony, big guy.

Author’s note: If you only aspire to be as intelligent as Uncle Sam wants you to be, STOP HERE. 

Question #2 – According to the BLS, cumulative inflation from 1980 to 2009 was 160.36%.  a)What is the simple inflation adjusted value of the house?  b)How much of the Twelvepack’s profit was the result of inflation and  c)how much was their profit after inflation? 

a) $198,915.04 ($76,400 * 2.6036)

b) $122,515.04 ($198,915.04 – 76,400)

c) $ 71,984.96 ($270,900 – $198,915.04)

C’mon, chin-up buckaroo. The Twelvepacks still made money. Beating inflation is the name of the game, right?

Well, there is one other factor we should probably consider: The effect interest rates had on the value of the Twelvepack’s “investment”. After all, re-fiing the house at ever lower interest rates is how they paid for Mary’s boob job, Joe’s rehab, that boat in the driveway, and the kids’ braces. God knows it wasn’t their ability to earn more.

Question #3 –The average 1980 mortgage was 14.005% APR (13.74% w/ 1.8 pts.) and the couple that bought it, the Fourpacks, got 5.1015% APR (5.04% w/ 0.7 pts plus cool cash from Uncle Sam) Their 30-year fixed mortgage payments are $1471.10. a)How big of a mortgage would that payment get if interest rates were the same as in 1980? b)How much of the Twelvepack’s “profit” can be directly attributed to the change in interest rates?

a) $124,206 (you’ll need Excel to calculate this if you’re not Korean)

b) $146,694 ($270,900 – $124,206)

 Question #4 –So there you have it. 74% of the Twelvepack’s gain can be attributed to the 9% drop in interest rate. When you strip out the interest rate effect, the house underperformed inflation by more than 60% over 30 years (and that’s excluding all other costs associated with the American dream), which of course means this wasn’t actually an investment at all. How many Americans understand this?

 A: Not many.

 Somehow the mathematical realities of the US housing market have completely escaped the education-loving American public as they continue to assume that the next thirty years will yield results similar to the last thirty. Utterly freaking impossible. We can’t drop mortgage interest rates 9% again (currently 4.4%), but we should expect houses to continue to underperform inflation.

Despite our perception, the earth turns. That’s what makes day and night, and that’s why it seems like the sun travels through our sky. It took human beings more than 2,000 years to fully embrace that truth. Teaching your children that houses are good investments (‘cuz look how it worked out for you) and they’re lucky to have such low mortgage interest rates is about as enlightened as sacrificing them to Moloch so the Sun will continue to rise.

 Right now, the powers that be are bazooka-ing tootsie rolls into the crowd at an unprecedented rate. So if your child asks you, “Who’s gonna pay for all this?” maybe you should just say, “Shut-up and eat your paint chips, kid.”


 “The more deflation [sic] the elite, champagne economists throw out there to convince people “your tax dollars really can keep that anvil up in the air,” the more we’re gonna be stuck in the mud for years and years and years….”

 ~ Rick Santelli (more top-shelf Rick)

The ultimate result of shielding men from the effects of folly, is to fill the world with fools”

~ Herbert Spencer



U.S. Home Prices:

 30 year fixed mortgage interest rates:


  1. Apocryphal student: “You can’t really blame the ancients.  After all, it does look as though the sun orbits the Earth.”

    Apocryphal Wittgenstein: “And how would it look if it were the other way around?”

    PS  I’m childless, so All Hail, Moloch!  (If we get no sun tomorrow at least I did my bit.)

    PPS I assume no word from Tim Geithner as yet, but have the USPS at least managed to find the Treasury building?

  2. Aha – just checked back a page and see that they have indeed. Go, USPS.

  3. No, no word yet, Michael

  4. [...] Submitted by Mark McHugh of Across the Street [...]

  5. I hope they didn’t build a new home in 1980, they would have just missed the yummiest pain chips.
    I’m not Korean, so I don’t get any of this, but I love the Santelli and Spencer quotes.

  6. “Pain chips”? At first I thought you were being droll….then I read the rest.

  7. Throw in another assumption or 2 and it actually gets better….
    1 – The Twelvepacks refinance in 1995 for a 15 year mortgage at the then current rate of 7.5%.
    2 – Factor in the mortgage interest and points tax deductions.
    3 – Factor in the home sale capital gains exemption.

    I don’t know all the math behind it all, but I’m sure that home ownership will beat the taxable income that the market had generated during that same 30 year period.

  8. “I don’t know all the math behind it all, but I’m sure that home ownership will beat the taxable income that the market had generated during that same 30 year period.”

    Wow, not only do you not understand the math, you can’t read either! You may as well have writen, “I ain’t needed my winter coat all summer!”

    Thanks for proving how many nit-wits there are out there

  9. Boy, am I ever glad I came back here to read comments.

    And what a coincidence, I ain’t needed my winter coat all summer, neither!

  10. My cat’s breath smells like cat food.

  11. It gets even worse if you calculate the cost of maintenance to keep the value of the house in the first place. It would be okay if the Fourpacks used their extra cash to extend and improve their house instead of getting boobjobs and paying for rehab.

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