Liz Pulliam Weston

The Basics

That's so 2005: What were we thinking?

Huge houses, bad mortgages, reality TV, expensive coffee -- in just a few short years, we've left a dicey legacy.

By Liz Pulliam Weston
MSN Money

When you're living through them, some of the most bizarre fads can seem positively normal.

If you have any doubt, check out your parents' high school yearbook photos. (Yes, your dad really did think he was stylin' in that haircut -- and that shirt.)

With time comes perspective, but I didn't want to wait 20 or 30 years to determine what the Pet Rocks and Members Only jackets of our age would be. So I asked around, querying readers on the Your Money message board and my followers on Twitter to determine what financial trends will most embarrass us in years to come.

The results are my 20 nominations for the "What were we thinking?" award:

1. McMansions: Sales of oversized houses on undersized lots soared during the real-estate boom, but the glory days of these architectural abominations may be over thanks to changing demographics and rising energy bills. Retiring baby boomers and first-time homebuyers will be the growth market, and they'll want smaller homes, not huge, expensive-to-heat starter castles. (Read about the McMansion backlash.)

2. Granite countertops: They crack. They stain. They're expensive. And yet they became the must-have kitchen accessory, as ubiquitous and predictable as stainless-steel appliances (another major pain to clean, by the way).

Was it really worth spending Junior's college fund on something that looks better than it works? (See the alternatives to granite.)

3. Remodeling as an investment: Only in a world designed by Bernie Madoff could remodeling be considered an investment.

At the housing market's peak, the most popular remodeling projects returned about 80 cents on the dollar and only if you sold soon after completion. Yet millions of Americans drained their home equity to pay for upgrades, redos and tear-downs that ultimately reduced, rather than built, their net worth. (See which projects do make sense.)

4. House porn: Whole evenings on some cable channels were devoted to shows about fixing up and flipping homes for big bucks. Today, you can tell which shows were taped post-bust: At the end, after the big "reveal," the would-be sellers are always "waiting for the perfect offer" to come in.

5. Cash-out refinancing: I wrote numerous columns warning you about tapping your home equity to pay off credit card debt, buy cars or finance vacations -- columns that usually ran alongside lender advertisements encouraging you to do exactly that.

If you'd listened to me, you might have enough equity left now to refinance at some amazingly low rates. Sorry, just had to rub that in.

6. Costco closets: Speaking of weird housing trends, there was a hot one for a while in building extra pantry space to accommodate bulk purchases from warehouse stores. So you'd save $12 on your paper towels, then store the monster package in a $12,000 specially designed closet.

Now that we've discovered real thrift -- buying less, rather than more -- maybe these closets can be converted to a room for the boarder that the McMansion owners need to make their payments. (If you truly need items in bulk, you're probably wondering which warehouse club is cheapest.)

7. Zero-down financing: Saving cash for a down payment indicates a borrower has at least rudimentary money management skills. Lenders forgot how important that was, but they've since remembered.

8. Option ARM mortgages: BusinessWeek rightly called these loans "nightmare mortgages" in September 2006, just as the real-estate bubble was about to burst. But that didn't prevent homebuyers in high-priced markets from snapping up these mortgages that allowed their balances to grow over time.

Many reset to much higher payments at the five-year mark and are a now big factor in the foreclosure crisis.

9. Condos as investments: In 2005, I warned you that the run-up in condo prices was "the tech-stock bubble all over again." Yet way too many people got sucked into the condo boom, paying top dollar for properties that were, ultimately, ugly stepsisters of what the real-estate people actually want: single-family homes.

As in past real-estate recessions, condo prices have fallen faster and will take longer to recover. That's something to remember if you're considering swooping in on any "bargains."

10. Credit card debt: The explosion of easy credit, starting in the early 1990s, culminated with widespread offers of 0% balance transfers and low, supposedly "fixed" rates.

Now millions are learning that whatever credit card issuers gave, they're apt to take away, and that includes low rates and generous lines of credit.

11. Birkin bags: There are many, many poster children for consumer excess. Manolo Blahnik shoes. Gucci sunglasses. Hermès scarves. But a handbag that costs more than some cars will suffice nicely.

If you have this much money to blow, you should be donating it to your local food bank.

12. "The Secret": This mega-best-seller insisted you could think your way to wealth and a smaller waistline.

I'm not going to knock the value of visualization, because clearly imagining your goal is a crucial first step. But the idea that you could get what you want without any effort or discipline was a clear sign the bubble was about to burst.

Continued: Plastic surgery and deregulation

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