By Rod Dreher • February 29, 2012, 10:55 PM

Megan McArdle makes a serious case for why we shouldn’t be so quick to snark about income reversals among the wealthy. Excerpt:

I believe that Elizabeth Warren has made this point–when people get into financial trouble, they often say, “Well, I didn’t take fancy vacations or go to restaurants all the time or buy 17 pairs of Jimmy Choos.”  But (with the exception of some really compulsive spenders) this isn’t the stuff that gets people into trouble.  It’s the big house with the stretch mortgage that you convinced yourself you had to have because it was in a good school district and you needed a yard and a bedroom apiece for the kids.  It’s that brand new SUV (or Volvo station wagon) you persuaded yourself to buy because it was important to have a safe car.  It’s the school activities or travel sports teams that cost thousands of dollars, which you let your kids start in ninth grade because you didn’t know that you’d have to break their hearts by pulling them out in their junior year. The divorce decree you signed because you didn’t realize your income was going to drop by a third.
Pricey vacations can be cut back.  Mortgage payments can’t.  It’s not the luxuries that usually get people into trouble–it’s paying too much for “the basics”.
More:
And in New York, it’s really, really easy to pay too much.  One of the guys in the article makes $350,000 and lives in 1200 square feet with three kids.  This is the way the lower rungs of the lower middle class lives in the rest of the country.  New Yorkers face an overwhelming temptation to push their housing budget to the limit, because what’s available on a conservative budget is really inconvenient unless you either make a whole lot of money, or lucked into a great deal in a down market or a transitional neighborhood.
That’s not to excuse the folks who spend too much on housing–apartments in vibrant New York neighborhoods are a consumption good, not an entitlement, and people who find the privations unbearable should move to the suburbs.  But I certainly understand it–especially because people tend to take cues on what is “safe” or “reasonable” from the behavior of the people around them.  Virtually every single person I know in New York spends well over a third of their income on housing.  Which is one of the reasons I no longer live in New York.
Read the whole thing.  That point about New York is definitely true. That’s one big reason we left there in 2003, even though we loved it. As much as we loved the city, we couldn’t foresee raising a family there on a journalist’s salary. Years later, I talked to a magazine about a senior-level job there, but to make it work economically, I would almost certainly have had to have lived a long commute away from the Manhattan office, and seen a lot less of my family than I would have wanted to.
This phenomenon is the biggest reason why I am extremely reticent to get back into home ownership. I’ve mentioned before how much money we lost when we had to sell our Dallas house in a down market. The six months it took us to sell the thing — and really, that wasn’t such a long time — did a number on our savings. Paying the Dallas mortgage, as well as Philadelphia rent. If we had to hold on to the house for a year or longer, it would have been a very serious financial situation for us — and we were in a much better financial situation than most people (e.g., we had no credit-card debt, owed very little in car payments, and I was making a good salary in Philly). We didn’t “pay too much for the basics” — in fact, our Dallas house was pretty cheap — but we found ourselves in a situation with a mortgage and a job situation that could have gone very bad very quickly. But if you had looked at our monthly income statements out of context, you would have thought, “How could they be in such precarious shape on that salary?”
That’s not exactly what McArdle is talking about in her post, but it does speak to her general point about people not getting into serious financial trouble over compulsive spending on luxury goods. We are rather risk-averse, and did everything conservatively — but still found ourselves in an anxiety-producing position. Man, the nights I tossed and turned, worried that we weren’t going to sell our house before we exhausted our savings! Having lived through that, it’s hard to imagine mustering the wherewithal to take a risk on another mortgage.
The Atlantic published a piece on how dramatically fewer Millennials are buying houses. There are several reasons. Here’s one this Gen X renter can relate to:

You can focus on the loudest numbers and conclude that young peoples’ aversion to home owning is an overreaction to a unique recession. Housing prices have fallen by a third in some cities. Couples have had a few years to pay off their debts. Mortgage interest rates are historically tiny. Could there possibly be a better time to buy?

Maybe not. But if the last 30 years have taught us anything, it’s that planning for the future is an act of faith. Supply chains and software eat our jobs. Financial wizardry eats our savings. The cost of insuring against these risks — that is, both college and literal insurance — is rising.  ”It feels like anytime we hit around $20,000 something terrible or some unexpected thing happens,” Steve Kinney, a Brooklyn resident, told theNew York Times last year. He’s part of a new renters society, and rental prices are rising now that housing prices aren’t. Three in five net jobs in the last two years have gone to people in their twenties and lower-thirties, “a crucial rental group,” according to an analysis of Labor Department data by G. Ronald Witten, an apartment firm consultant.

It’s no wonder that in an environment that punishes the long-term faithful, more young people are planning month to month.