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Will Tiny Homes Save Boston Residents From A Destructive Household Debt?

house with cash in itIn an article we wrote in June of this year, we mentioned how there is an increase in household debt. We mentioned how there is a steady increase in debt from July 2013 to March 2014. From $11.5 trillion, the debt now currently stands at $11.6 trillion. It may be a sign of growing consumer confidence or it may be a sign of us going back in our own ways. But one thing is for sure, we need to keep our debts in check if we do not want to return to the same situation we were in during the Great Recession.

In an article published on Boston.com, an interesting concept is discussed about how tiny homes can possibly solve financial problems.There are middle, high school and college students who are currently interested in these tiny houses. Young professionals and retirees are also attracted to the appeal of these low cost homes that could lead them to a debt free life. If you think is a fad, it is not. With a more comfortable and homelike feel than RVs, these tiny houses are gaining attention in all of the country. In fact, the article mentioned that Texas, Wisconsin and Oregon are all utilizing these small home structures to solve their problems with homelessness. There are also private investors who are starting to plan Tiny Home communities.

According to statistics published on the ILoveTinyHouses.com there is a continuing growth in the popularity of these homes. In fact, from 2004 to 2013, there is a 687% growth in the “Tiny House” keyword search. That means people are interested in the idea of these small homes.

In Massachusetts, this trend is not yet gaining foothold but that does not mean it is not welcome. The article mentioned a couple of facts that indicate how this movement may be what the Boston residents need to alleviate their respective household debt.

What is the credit situation of homes in Massachusetts

The article mentioned that the reason why this is not as popular as it is in other states is because the situation in Massachusetts is not as bad. The unemployment rate is 7.4% – which places the state in the 18th place in the lowest unemployment list. Only 11.6% of the residents are living below the poverty line and that means people are not really in dire financial conditions.

Does that mean there is no financial problem here? That is unlikely. There are three important statistics that the article mentioned that can spiral out of control and become a full blown crisis.

  • Boston is the 31st most expensive city in the whole world. If this cost of living is not lowered, the young adults may have to relocate in order to afford paying off their student loans and build up their savings.
  • Massachusetts in general experienced the highest increase in homelessness. They are actually in 5th place compared to all the other states in 2012 to 2013. The count in January 2013 is 19,029 homeless people. The state is spending $82 a night to help a homeless family live in a motel room. That is $30,000 a year.
  • Students spend an average of $7,500 to $9,000 a year on room and board expenses alone. That is approximately $30,000 to $36,000 for a 4 year course. This cost is adding to the debt that the student has to take in order to afford the high cost of a college education.

The article also mentioned a couple of nationwide statistics that will not add to the confidence that people in Boston has to be feeling. The statistics show that:

  • The median middle class household income in 2012 is at $51,071 – which is actually still lower than the average in 1989 at $51,681.
  • The poverty rate in the country in 2012 is at 15% – approximately 46.5 million people.
  • The household income declined by 8.3% since the crash of 2007.
  • The young adults that are aged between 25-34 are still living with their parents and have a poverty rate of 9.7%.

These statistics are quite scary especially for the young adults who are graduating with a lot of student loans. We do not want the future leaders of the country to start their lives in debt because this is the norm that they will get accustomed to.

How can they afford to live the American Dream that is comprised of a stable career, a big home and their own car? In fact, a lot of Millennials are delaying a lot of things in their lives because of their debts. They cannot buy a home, pursue a career that they love and live a stress free and optimistic  lifestyle – all because of the household debt that they are currently burdened with.

How can Tiny Homes help keep people out of debt?

The article ended by mentioned three ways that Tiny Homes can help Massachusetts deal with the three problems mentioned above.

  • To deal with the homeless families costing the state $30,000 a year, the article suggested that Tiny Homes be put up for them to live on. This makes a lot of sense because these homes cost between $20,000 to $24,000 only.
  • Make Tiny Homes available to college students – something they can purchase and pay off while they are in college. They can use this home to eventually finance something greater when they graduate – like paying off their student loans or selling it to finance the down payment for a bigger home.
  • Residents who are burdened with high rental prices can actually live in these homes for a fraction of a cost than the bigger houses.
  • The Tiny House industry also needs investors. This is a booming industry that attracts a lot of investors from different states. This may be a business that residents of Massachusetts can make money from.

You see, the article is saying that downsizing to a Tiny Home can help you save major categories in your household budget. We can see three important benefits to these Tiny Homes that the article did not mention.

No Mortgage

First of all, there is no mortgage. This is the highest amount in the average household debt. The cost of a Tiny Home, even if you get a company to build it for you is only between $50,000 to $60,000 at the most. That is usually the 20% down payment that is needed for the average American home. You can pay for your tiny house in cash and be free from mortgage. According to Bankrate.com, the average mortgage payment for a 3 bedroom home is $865 in the fourth quarter of 2013. This is based on a 30 year fixed rate mortgage at 4.46% and with a 20% down payment.

Lower cost of homeownership

The smaller the home, the less you have to pay in terms of utilities and other monthly bills. When you live in a tiny home, you will need even less. Since your space is also small, you will not have the urge to buy unnecessary stuff. This will really keep your spending to a minimum.

Faster growth of personal wealth

Lastly, you will benefit from a faster growth of your personal wealth. Without the mortgage payment and the lower monthly bills, your chances of accumulating household debt will be a lot less. Not only that, you will have more money to put aside in your savings. You can build up your emergency fund and that will make it very easy to maintain debt freedom.

Here is a video of Amy Henion about tiny homes and why she thinks that it is the ‘gateway dream.’ By this she means tiny homes can help you reach a lot of your dreams – may they be related to your finances or not.

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