House price vs Net Worth

[Gumby]

Our fully paid for home is ~25% of net worth. I don't try to value our pensions or social security for purposes of calculating that net worth, although those income sources have allowed us to have a negative portfolio withdrawal rate so far.

 

[NW-Bound]

I occasionally thought about how much more I would have if I invested in the stock market instead of buying the 2nd home in 2005.

The market went up 5x in 17 years. My 2nd home went up not quite 2x, and that is after improvements and lots of maintenance costs. Cumulative inflation is 1.5x in these 17 years, so the return is even smaller.

Of course, the 2nd home brought pleasures and good memories. I count it as consumption and not an investment.

Still, real estate at least keeps up with inflation, and does not depreciate like a motorhome, a boat, a plane. I don't regret doing it.

 

[Alex The Great]

Growing up in the Bay Area (60+years) I don't give it a second thought. You buy a house, live in it, and all other financial planning comes after. I saved and invested to meet my financial goals independent of the value of my home.

This is true. But you cannot ignore your house in financial planning completely, since you pay a property tax (assuming the loan paid off like in my case).

 

[pjigar]

Doesn't seem like a crazy thing given your income and assets. Curious - since you are able to work remote, why are you moving to a much higher COL area? Most folks are doing the opposite!

We did exact opposite! We sold our McManson and moved to country. Unlock the equity and put it to work on generating some returns. And extra savings on living expenses is "two for one".

 

[Koolau]

I occasionally thought about how much more I would have if I invested in the stock market instead of buying the 2nd home in 2005.

The market went up 5x in 17 years. My 2nd home went up not quite 2x, and that is after improvements and lots of maintenance costs. Cumulative inflation is 1.5x in these 17 years, so the return is even smaller.

Of course, the 2nd home brought pleasures and good memories. I count it as consumption and not an investment.

Still, real estate at least keeps up with inflation, and does not depreciate like a motorhome, a boat, a plane. I don't regret doing it.

And you do have to live 'someplace' although housing costs can be kept quite minimal if one is willing to live in a LCOL area and choose a small/less desirable home or rental. Heh, heh, right now I could live full time in the old Homestead for (wait for it) $500/month, utilities included. It's a bit of a dump, but comfortable and plenty big for us. By comparison, our HOA dues are over $800! Why don't live FT in the Homestead? ....Seriously? YMMV

 

[NW-Bound]

And you do have to live 'someplace'...

Yes, one has to live "someplace", but why do you have to live at "that place"?

It's not a necessity. It's consumption.

 

[Retireby45ish]

OP--
You are both young, earn and save a ton of money, well above average.
If this move and house are a positive dream for you, then you have done well.
You have the means to afford it.
Take life one day/year at a time. You may or may not need to work beyond your planned retirement.
Enjoy your new house, try to maintain a solid budget and keep plugging away at your savings.

Thanks for your words. This is what I’m telling myself as the market keeps going down and this house becomes what I view as a big drain on resources. But the other side of the coin is that If you don’t enjoy your surroundings while you are here and alive and kicking what good is a big pile of money when you are too old to enjoy it.
Still going forward with it. but I think I’d be just as happy in a 700k home and the extra 400k working for me to afford me more of the little things I might want. The wife is the opposite way…it’s all about a comfortable and beautiful home.

 

[Koolau]

Yes, one has to live "someplace", but why do you have to live at "that place"?

It's not a necessity. It's consumption.

I suppose that's correct. However, it is a matter of degree. People used to live in caves, some folks still live in tents. What is consumption and what is just a place to live? YMMV

 

[athena53]

The house I bought after my divorce cost $350K and my investments were about $270K at the time. (Yeah, I have a spreadsheet for that.) The mortgage was $250K. It was a HCOL area (Bergen County, NJ) and I needed to keep my son in a decent school district.

I sold 6 years later at a $200K profit and moved to a LCOL area when I changed jobs so needed only about half the proceeds for the next house. It was a good boost to my retirement funds.

So, these things can turn out well. Sounds like you bought in a very desirable area. I hope you'll get similar results if/when you decide to sell at retirement.

 

[NW-Bound]

I suppose that's correct. However, it is a matter of degree. People used to live in caves, some folks still live in tents. What is consumption and what is just a place to live? YMMV

Where's MasterBlaster who always shows us "just a place to live"?

 

[Retch The Grate]

We bought in Dec 2020 and had to put in more than I had wanted (was hoping to be in for $375k, but had to put in about $1m). It definitely feels like it set us back as my portfolio was greatly reduced for the big gains in 2021, but we do love the house and are pretty happy with the change in lifestyle owning has given us. So perhaps focusing on that will help, even if it takes a few more years of saving and investing to get back to being where you want to be financially?

 

[madatrub]

We basically ignore our houses (have a primary and a rental) towards retirement and not counted in NW. We'll own them both outright in ~8 years, looking to retire in around 9 years. The way we figure, we'll sell 2 and buy a retirement home somewhere. Whatever is left over, if anything, will just be bonus.

It was a HCOL area (Bergen County, NJ) and I needed to keep my son in a decent school district.

We are in NJ too. Some of the housing prices in north jersey have gone nuts in the last 24 months.

 

[kcowan]

Home is where the heart is. As long as it feels right, it is right. Money does not matter as long as you can swing it!

 

[MichaelL]

I bought a house in 2008 after prices had been going down. I was in the same situation. I had been looking for a long time and finally was able to buy. The value went down about 33% by 2010 but started coming up in 2012. I sold in 2018 and made a 40% gain. I took the equity and bought in another state and have no mortgage. My current home is 13% of my networth. If I still had the other home it would be 25% of my networth and have a mortgage. If you have 10 years to wait you will have options. You could sell and move or maybe you will make enough money that you stay where you are.

 

[Magus]

I don't expect anything like a bust here. Homes are still listing and selling at almost double their prices from 3 years ago. Most of them aren't mortgage-dependent buyers, but investors and flippers.

Still, with the equity markets in a down turn & rates increasing, I see the demand drying up. Supply will similarly stay near-nil, as new builds will slow/stop as well. So I anticipate a flattening, and a mild taper, a shaving off the tops, but nothing like a bust or a burst or a 2008.

Yup my expectations as well, areas that have lagged my continue to rise and areas that went up double from three years ago probably teeter around current pricing for a while. I do think areas dominated by second homes could see some modest declines

 

[captain3d]

I would take doubling in three years to be a very strong signal that prices will come back down. Stocks down, bonds down, mortgage rates up, people feeling poorer seems unlikely to make house prices go up

 

[Magus]

I would take doubling in three years to be a very strong signal that prices will come back down. Stocks down, bonds down, mortgage rates up, people feeling poorer seems unlikely to make house prices go up

Possibly, but housing prices (and rents) historically are extremely sticky barring an outside number of foreclosures, which with the best class of buyers in history the last 2.5 years and more home equity as a % of house than ever, combined with a job market that would need to “lose” 6 million posted jobs just to bring the job market in balance, this seems highly unlikely. People tend to stay out and not move if they feel like their house has lost value recently, even if you huge from 3 years ago, which reduces supply, which keeps pricing high. The only other thing that would normally bring pricing down is heavy new home builds but the cost to build a new home is way higher than existing stock, so builders will pare back quickly if prices drop at all. Long story short, I don’t see it dropping. It didn’t in Canada, europe or Australia after their huge run ups in the 90s and 00s

 

[W2R]

Home is where the heart is. As long as it feels right, it is right. Money does not matter as long as you can swing it!

+1 Such a wise statement!

As you all probably know by now, I *love* living in my Dream Home that I bought back in 2015. It's just right for me, I love it, it's already fixed up for the elderly and disabled (who knew I'd like those grab bars so much? ), and best of all, it's next door to Frank's house.

The best part of every day is awakening in the morning and realizing once again that I am still here in my wonderful Dream Home.

Like in many locations, real estate prices in my neighborhood jumped upwards a while back. It was a hot sellers' market for a while. Seems to me that by now, fewer homes are available in our neighborhood, prices have stabilized, and they aren't selling nearly as fast. Makes no difference to me! We plan to never move, and to age in place in our homes.

According to realtor dot com, my house is presently worth about 17% of my net worth (excluding SS and pension). But really, it doesn't matter if it's 5% or 95%. I have it, I love it, and I have enough other income (from portfolio, SS, mini-pension, etc.) to handle my other expenses.

 

[RetiredAt49]

I sold my “dream home” last year and retired at age 49… While I enjoyed my “dream home”, I enjoy retirement more [emoji41]

 

[Badger]

I sold my “dream home” last year and retired at age 49… While I enjoyed my “dream home”, I enjoy retirement more [emoji41]

I never had a "dream home". We just have the last old remaining small concrete block home by the sea but in a desirable neighborhood of new McMansions. We paid off the 8.75% mortgage more than 2 decades ago. Over the years my wife has mentioned a few times how she would like to have a newer (dream) house but realizes that moving would have eliminated many advantages that we have here and more than likely extended out work years past retirement age. She (and I) also enjoy the travel and the leisure of retirement as well as the security of our net worth. We have never been the type to chase the dollar and keep up with the Jones. We traded that mindset decades ago for a more enjoyable lifestyle.

Cheers!

 

[brett]

When we retired early we decided two things. The first was to get rid of our large family home. The second was to travel internationally for six-eight months.

We sold the house, put what we wanted to keep in a storage container and did out thing.

We sold at just about the height of the market in our area. Just dumb luck. When we came back real estate was down. And stayed down for four years. We rented.

The home equity that we put into the market performed very well. Best thing we ever did was invest it and rent over that period.

There is no 'right' answer. It involves emotion, the housing market in your area, your desire for change, etc. In our case the last thing we needed when we planned to be out of the country for four months of the year was a house for two that had five bedrooms, four full toilets, etc and required lots of renos to bring it up to par. Not to mention property tax, insurances, landscape and snow removal. We decided that this was not for us any longer.

 

[finnski1]

I never had a "dream home". We just have the last old remaining small concrete block home by the sea but in a desirable neighborhood of new McMansions. We paid off the 8.75% mortgage more than 2 decades ago. Over the years my wife has mentioned a few times how she would like to have a newer (dream) house but realizes that moving would have eliminated many advantages that we have here and more than likely extended out work years past retirement age. She (and I) also enjoy the travel and the leisure of retirement as well as the security of our net worth. We have never been the type to chase the dollar and keep up with the Jones. We traded that mindset decades ago for a more enjoyable lifestyle.

Cheers!

Sounds like wise decisions to me!

 

[Time2]

With the down stock market my home is at 10% of my net worth, I do not include my home value in my net worth. I bought in 1994 and expect this to be our last home.

 

[Gumby]

We have lived for 30 years in the first and only house we ever looked at. Over the years, we have made it into our dream home. It is a good chunk of our total net worth, but I don't think we will leave until the vicissitudes of old age require it. There is still more than enough in the liquid portfolio to sustain us in the manner to which we have become accustomed.

 

[Teacher Terry]

Through my life I have owned 10 different houses or condos. Some I liked more than others. Last year when I sold the house and bought a condo I thought I would miss it especially the yard. Being alone I much prefer my condo and my balcony is a adequate space to be outside to read and relax. I never enjoyed yard work and I didn’t plant things.

Amazingly enough 855 sq ft is big enough for me and I really love how quickly I can clean it. Having the second bedroom was important to me so I can have guests overnight as well as a extra room for stuff.