GoKawiilOver the last year, I’ve come to an unsettling realization—the upper middle class is caught in a trap, and many of them don’t realize it.
A few weeks ago I wrote about why private school isn’t worth the cost. My argument hinged on the fact that the upper middle class pays a lot for private education despite there being no significant impact on lifetime outcomes. In The Death of the Amex Lounge, I found the same thing—premium travel experiences had become crowded while remaining expensive.
And, after recently digging into the data on housing, I’m having déjà vu. Homes are getting smaller even as prices rise. LendingTree reported that, from 2014 to 2024, the average size of new single-family homes shrunk by 11% even as the price per square foot surged by 74%! This is just the average too. A home near a public elementary school with a GreatSchools rating of 9 or 10 costs 78.6% more than a home in the surrounding county.
All of these trends point toward the same thing—people are paying more and getting less. This is what I call the upper middle class trap.
The Financial Arms Race
Right now, the upper middle class is in fierce competition for a marginal improvement in lifestyle. They’re working more and relaxing less to purchase products and services with clearly declining quality. It’s a financial arms race that doesn’t make any sense.
You have people making six-figure incomes going into a frenzy for nicer homes, better schools, and more luxurious travel experiences. What’s the end result of this status contest? Overpaying, and by a lot.
For example, one group of researchers found that bidding wars on housing tend to decrease long-term returns by a significant margin. As they stated:
The coefficient estimate for bidding war transactions is negative and statistically significant, indicating homebuyers who purchase their house in a bidding war experience 6.9% lower levered annualized returns than homebuyers who did not purchase their house in a bidding war.
That’s nearly 7% per year in lost returns simply due to price competition.
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