House price vs Net Worth

[ShokWaveRider]

Our home is 15% of our total net worth. HOWEVER, I still only use the original price we paid, and not the current value which is significantly more.

 

[steelyman]

Our home is 15% of our total net worth. HOWEVER, I still only use the original price we paid, and not the current value which is significantly more.

That’s what I use too (purchase price). I’m at about 16%.

[ADDED] I only recently added this calculation to my retirement spreadsheet which now shows both liquid and total net worth (the latter includes home value).

 

[rkser]

Our house is now about 8% of our Net Worth. It was 5% before the Market Downturn.

 

[Koolau]

Our home is 15% of our total net worth. HOWEVER, I still only use the original price we paid, and not the current value which is significantly more.

It's obviously your choice to use the original price. But do you use the original price of your other net-worth components (equities, bonds, fixed)? Just curious how it works so YMMV.

 

[ShokWaveRider]

It's obviously your choice to use the original price. But do you use the original price of your other net-worth components (equities, bonds, fixed)? Just curious how it works so YMMV.

No current value as that is real money, and not an asset. We do not count any other asset as part of our net worth either, just our home. Homes go up and down, and you have to live somewhere. If one uses current value, it is merely speculation, it can take weeks or months to close a home and things can change fast. Our home is worth what I paid for it to me, unless it goes down of course. But as it is worth 3 x what we paid I think it is a good bet.

 

[Koolau]

No current value as that is real money, and not an asset. We do not count any other asset as part of our net worth either, just our home. Homes go up and down, and you have to live somewhere. If one uses current value, it is merely speculation, it can take weeks or months to close a home and things can change fast. Our home is worth what I paid for it to me, unless it goes down of course. But as it is worth 3 x what we paid I think it is a good bet.

Okay, thanks for the explanation. I guess I simply don't count my home as part of investable assets - so it's almost the same thing.

Heh, heh, every once in a while, I "cheat" and count my home in net worth (strictly, back of the envelope calculation.) At least right now, it makes me feel good (next year, who knows?) Regards and aloha.

 

[madatrub]

Yikes. Although still 10 yrs from retirement, our homes are almost half of our net worth.

 

[Time2]

Our home is 15% of our total net worth. HOWEVER, I still only use the original price we paid, and not the current value which is significantly more.

Well if you want to play that way, I'm at 3%, but I have been in my home for 27 years. That makes a significant difference.

 

[copyright1997reloaded]

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

Another data point indicating possible trouble:

..showing that 114,706 single-family houses and condominiums in the United States were flipped in the first quarter. Those transactions represented 9.6 percent of all home sales in the first quarter of 2022, or one in 10 transactions – the highest level since at least 2000. The latest total was up from 6.9 percent, or one in every 14 home sales in the nation during the fourth quarter of 2021, and from 4.9 percent, or one in 20 sales, in the first quarter of last year.
...
But the report also shows that as home sales by investors spiked, typical raw profits on those deals remained below where they were a year ago, and in a more striking trend, profit margins dipped to their lowest point since 2009.

link: https://www.prnewswire.com/news-releases/home-flipping-spikes-across-us-in-first-quarter-of-2022-but-profits-drop-to-13-year-low-301573695.html

 

[Koolau]

Well if you want to play that way, I'm at 3%, but I have been in my home for 27 years. That makes a significant difference.

Our situation was once a bit complicated. The last several years before FIRE, we counted our townhouse in the Islands as an investment and our house on the mainland as just our residence. Soon after FIRE, we moved to the townhouse in the Islands and began selling our house on the mainland. So the two properties switched (asset vs residence.) THAT changed our % quite a bit even though our net worth hardly changed at all. YMMV

 

[Time2]

Only kinda related, but this chart shows, why some of the young people are discouraged about buying a house.
https://www.longtermtrends.net/home-price-median-annual-income-ratio/

 

[Badger]

My 70 year old house that I bought 40 years ago is not worth what it would sell for today. Actually the value is in the land. When the day comes a buyer will just knock it down and build another McMansion. That is what all my new neighbors have done with all the old original houses on my street. I'm glad I don't have to look for housing these days.

Cheers!

 

[Koolau]

My 70 year old house that I bought 40 years ago is not worth what it would sell for today. Actually the value is in the land. When the day comes a buyer will just knock it down and build another McMansion. That is what all my new neighbors have done with all the old original houses on my street. I'm glad I don't have to look for housing these days.

Cheers!

We were visiting friends in a nice Honolulu neighborhood several years ago. They pointed to the house across the street, indicating that it just sold for $1.1 million. Then they told us it was a tear-down - to make room for a much more expensive house. Whoa!

 

[pjigar]

Our situation was once a bit complicated. The last several years before FIRE, we counted our townhouse in the Islands as an investment and our house on the mainland as just our residence. Soon after FIRE, we moved to the townhouse in the Islands and began selling our house on the mainland. So the two properties switched (asset vs residence.) THAT changed our % quite a bit even though our net worth hardly changed at all. YMMV

Same here for about 7 years while we lived in a McMansion in a suburb and an acreage in the outskirts of the suburb. Last year we switched. Although we stopped counting our acreage home from the Networth which is not entirely accurate. The large land portion of our homestead CAN be counted as an investment but only if we ever decide to sell it! If I count the entire equity of the acreage then our home represents about 25% of Networth.

 

[Koolau]

A dear friend lost her husband about 3 years ago. She has continued to live in the Islands in their 2/2 condo. Recently, she made the decision to move back to the mainland to be close to family. She sold her condo and bought a town house in her old home state. Suddenly the numerator of her house/net worth was cut in half. I don't know the denominator, but the change is dramatic.

Not only that but her condo was older and was developing problems such as spalling while her town house is new, larger, and has an HOA dues of $80 instead of $600. Things are looking up for her and I believe any financial worries are now behind her. Location, location, location. YMMV

 

[Andre1969]

Your stats seem reasonable to me. For a rough comparison, when I bought my last house, the breakdown was:
Purchase price: $630,000
Mortgage: $472,500.
Invested asset worth (after the down payment) $1,765,000.

At the time, I was only making around $82,600 per year. I got qualified for that big of a mortgage based partly on my assets, but they made me put down 25% instead of 20%.

At the time, my mortgage was 4.75%. And, soon after I bought, the market did tank a bit and I was a bit apprehensive, and second guessing myself.

However, I refinanced, twice, and got down to 2.875% in 2020. With that second refinance, the loan amount was $468K, not much lower than the original, but I rolled the closing costs into the loan, both times.

Currently, down to about $451K on the mortgage. House might be worth about $800K or more (partly because I added a 36x60 garage with a loft). Last time I checked the invested assets, I was around $2.1M, down about $450K YTD.

Anyway, I figure if I was fine taking out a $472.5K mortgage, with my relatively meager income, you should be just fine, taking out $500K, with $400K in combined income. Plus, you've amassed a very good nest egg, at your age.