Join Early Retirement Today
Reply
 
Thread Tools Search this Thread Display Modes
House price vs Net Worth
Old 06-15-2022, 11:10 AM   #1
Recycles dryer sheets
 
Join Date: Dec 2018
Posts: 204
House price vs Net Worth

Looking for some insight here as we look at housing costs.

We moved to a location where housing costs are much higher than our last home(600k). We have been looking for a year(!) but bid 1.1 Million for a home and finally won. I feel conflicted on this.

The higher price, coupled with the recent market downturn, seems to have me putting too much equity into a home…and setting back my RE plans.

Wife and I are both early 40s.
House: 1.1M…I’ll put 600k in (previous home) and mort the other 500k

Other assets: 2.5M (70/30). Down 500k from Jan
Earnings per year around $400k (remote workers)
So we were saving about 200k per year.

Current expenses: 75k yearly. Not counting new mortgage.
Target spending in retirement (with healthcare); 120k

I wanted to FIRE with 4M of investments, which at 3% WR, set us up to FIRE. So seems like I was on my way at ~3.2M to retire in 3-4 years before market selloff and now having to take on the mortgage debt and added expenses of bigger home. I’ll also be tying up almost 30% of my money in home as I pay off mortgage early (if that makes sense vs bond yields).

I also worry the housing market will soften and this illiquid market might make it tough to exit in 7-10 years if we are ready for a new chapter.

Any thoughts are appreciated. We need a home. And we like it here. But I hate the idea of stepping backwards in my FIRE journey. But honestly getting anything decent here for under 1M is impossible.
Retireby45ish is offline   Reply With Quote
Join the #1 Early Retirement and Financial Independence Forum Today - It's Totally Free!

Are you planning to be financially independent as early as possible so you can live life on your own terms? Discuss successful investing strategies, asset allocation models, tax strategies and other related topics in our online forum community. Our members range from young folks just starting their journey to financial independence, military retirees and even multimillionaires. No matter where you fit in you'll find that Early-Retirement.org is a great community to join. Best of all it's totally FREE!

You are currently viewing our boards as a guest so you have limited access to our community. Please take the time to register and you will gain a lot of great new features including; the ability to participate in discussions, network with our members, see fewer ads, upload photographs, create a retirement blog, send private messages and so much, much more!

Old 06-15-2022, 11:32 AM   #2
Full time employment: Posting here.
 
Join Date: Oct 2021
Posts: 554
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!
Magus is offline   Reply With Quote
Old 06-15-2022, 11:48 AM   #3
Moderator
Aerides's Avatar
 
Join Date: Nov 2015
Posts: 11,069
IIRC you sold a while back, so you probably weren't planning on a 1M+ home in your new location, more like thinking $200k more than the old one?

Either way, sounds like you have landed, and it's where you want to be. Your alternative is to roll the dice and rent and live with uncertainty for a few years (I would not want to do that).

You're still young, working, and saving. 3-4 years it could still all work out in your favor. Or maybe 4-5, so I'd probably go for it and enjoy your home.
Aerides is offline   Reply With Quote
Old 06-15-2022, 11:52 AM   #4
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
 
Join Date: Feb 2013
Posts: 8,581
Not sure where you are buying, but in the Bay Area, the home prices have always been pretty boom and bust and it looks like we are headed for a bust.
__________________
Even clouds seem bright and breezy, 'Cause the livin' is free and easy, See the rat race in a new way, Like you're wakin' up to a new day (Dr. Tarr and Professor Fether lyrics, Alan Parsons Project, based on an EA Poe story)
daylatedollarshort is offline   Reply With Quote
Old 06-15-2022, 12:08 PM   #5
Moderator Emeritus
W2R's Avatar
 
Join Date: Jan 2007
Location: New Orleans
Posts: 46,077
Quote:
Originally Posted by Retireby45ish View Post
The higher price, coupled with the recent market downturn, seems to have me putting too much equity into a home…and setting back my RE plans.
[...]
We need a home. And we like it here. But I hate the idea of stepping backwards in my FIRE journey. But honestly getting anything decent here for under 1M is impossible.
Sounds like buyer's remorse to me. I don't want to seem mean, but as you know, the time to make these decisions is before you move, not after. Hopefully the new job brings with it new opportunities for career advancement and higher paychecks on down the road.
__________________
Already we are boldly launched upon the deep; but soon we shall be lost in its unshored, harbourless immensities. - - H. Melville, 1851.
W2R is online now   Reply With Quote
Old 06-15-2022, 12:08 PM   #6
Recycles dryer sheets
 
Join Date: Dec 2018
Posts: 204
Quote:
Originally Posted by Magus View Post
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!

When we initially looked here it was a lower COL area. But it’s a nice vacation destination so prices have skyrocketed because there is low inventory and a lot of demand since everyone can work remotely.
Retireby45ish is offline   Reply With Quote
Old 06-16-2022, 10:34 AM   #7
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
Koolau's Avatar
 
Join Date: Jul 2008
Location: Leeward Oahu
Posts: 10,412
I don't think your move puts you in any serious financial jeopardy. I would look at it this way:

You have a plan that looks like it will work to let you retire when you want to. Buying in a HCOL area when the markets are dropping may change some of the figures in your plan. BUT you have two back-ups that should be golden (though admittedly not ideal):

1) Retire a bit later if you must

2) If you can move to a HCOL area, you can move away from a HCOL area. 5 years, 10 years down the road if your FIRE plans are in jeopardy, such a move would likely solve everything - not that it's ideal.

My gut says you'll not need either of these back-ups, but either should be very effective (all else being normal) at preventing any financial catastrophe. But, as always, YMMV.
__________________
Ko'olau's Law -

Anything which can be used can be misused. Anything which can be misused will be.
Koolau is offline   Reply With Quote
Old 06-16-2022, 10:40 AM   #8
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
OldShooter's Avatar
 
Join Date: Mar 2017
Location: City
Posts: 8,530
Quote:
Originally Posted by Retireby45ish View Post
... bid 1.1 Million for a home and finally won. ... I hate the idea of stepping backwards in my FIRE journey. ...
Seems like the train has already left that station. Are you looking for people to tell you that stepping backwards is OK? Life is more than just finances, but your decision is not one that I would have made.
__________________
Ignoramus et ignorabimus
OldShooter is offline   Reply With Quote
Old 06-16-2022, 10:46 AM   #9
Thinks s/he gets paid by the post
 
Join Date: Jan 2006
Posts: 4,431
Seems like an odd time to be asking. You already have an accepted offer so too late to reasonably back out now. That said, with your income I see no reason to hold back if you like the new house a lot better than the old one. Housing in HCOL areas will continue going up long term so not a bad investment. Good luck
aaronc879 is offline   Reply With Quote
Old 06-16-2022, 10:51 AM   #10
Thinks s/he gets paid by the post
 
Join Date: Sep 2006
Posts: 2,788
You are trading 3 years of working for a nice home while in your 40's and still able to retire by the time your are 50. Congratulations, you must have made some wonderful decisions along the way. Homes can be lived in for another 30 years seems like a sound decision to me.
__________________
But then what do I really know?

https://www.early-retirement.org/forums/f44/why-i-believe-we-are-about-to-embark-on-a-historic-bull-market-run-101268.html
Running_Man is offline   Reply With Quote
Old 06-16-2022, 12:10 PM   #11
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
NW-Bound's Avatar
 
Join Date: Jul 2008
Posts: 33,301
I just happened to check mortgage rates.

Average 30-year rate is 7.1%.

Average 15-year rate is 5.5%.
__________________
"Old age is the most unexpected of all things that happen to a man" -- Leon Trotsky (1879-1940)

"Those Who Can Make You Believe Absurdities Can Make You Commit Atrocities" - Voltaire (1694-1778)
NW-Bound is offline   Reply With Quote
Old 06-16-2022, 04:09 PM   #12
Recycles dryer sheets
 
Join Date: Dec 2018
Posts: 204
Quote:
Originally Posted by NW-Bound View Post
I just happened to check mortgage rates.

Average 30-year rate is 7.1%.

Average 15-year rate is 5.5%.

Yikes!

First, thanks for all the responses.
This has been a tough decision, but we are moving ahead. And one that overshadows years of frugal (miserly?) small ones. But as someone said, “not all decisions are financial” which is my life-lesson to learn (according to DW).

For those that said “this is coming too late…we were within the inspection period and could have backed out with no major penalty”. Until the ink is dry it’s never too late to assess all options (I have 2 more weeks).

I got a 7/1 ARM 4 weeks ago at 4.125. I will pay it off or refinance then because I need lower cash flow for ACA reasons.

So I guess the good thing in all this is I’ve locked in my rate in this rapidly raising rate environment. I wish it was 3% or so, as it was 3 months earlier, but I guess I’ll take that small win.
Retireby45ish is offline   Reply With Quote
Old 06-16-2022, 04:37 PM   #13
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
NW-Bound's Avatar
 
Join Date: Jul 2008
Posts: 33,301
Well, 7% is only 1/2 of what I paid for the mortgage of my 1st home back in 1980. And I padded myself on the back when the rate climbed from 14% up to 17% or so.

My son bought his home in 2017 or so, and paid a bit less than 4%. We kept telling him to refinance, and he finally did 6 months ago, getting 2.75%. I think he now realizes how lucky he was.
__________________
"Old age is the most unexpected of all things that happen to a man" -- Leon Trotsky (1879-1940)

"Those Who Can Make You Believe Absurdities Can Make You Commit Atrocities" - Voltaire (1694-1778)
NW-Bound is offline   Reply With Quote
Old 06-16-2022, 04:40 PM   #14
Moderator
rodi's Avatar
 
Join Date: Apr 2012
Location: San Diego
Posts: 13,122
Congrats on your new home.

As to the question posed in the title... I live in Southern CA. Home prices are wacked!!! My home value is about 45% of my net worth. Fortunately, we didn't pay that much. All that matters to me is that our non-house investments cover our spending.

I keep waiting for a housing correction, but keep reading it's not going to happen.
__________________
Retired June 2014. No longer an enginerd - now I'm just a nerd.
micro pensions 6%, rental income 20%
rodi is offline   Reply With Quote
Old 06-16-2022, 09:04 PM   #15
Thinks s/he gets paid by the post
 
Join Date: Jun 2021
Posts: 1,046
BOA is only at 5.5% for 30-year.
RetiredHappy is offline   Reply With Quote
Old 06-16-2022, 10:49 PM   #16
Recycles dryer sheets
Alex The Great's Avatar
 
Join Date: Nov 2016
Location: San Jose
Posts: 184
Quote:
Originally Posted by rodi View Post
My home value is about 45% of my net worth.
This is still reasonable. I have it about 60% (Bay Area) and it really gives me a headache what's to do with this situation.
Alex The Great is offline   Reply With Quote
Old 06-16-2022, 11:33 PM   #17
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
NW-Bound's Avatar
 
Join Date: Jul 2008
Posts: 33,301
The values of my 2 paid-for homes are roughly 20% of my net worth. With the market beaten up, the ratio is now 22%.

I have no doubt the home values will drop along with the stock market, and the ratio may go back to 20%.
__________________
"Old age is the most unexpected of all things that happen to a man" -- Leon Trotsky (1879-1940)

"Those Who Can Make You Believe Absurdities Can Make You Commit Atrocities" - Voltaire (1694-1778)
NW-Bound is offline   Reply With Quote
Old 06-17-2022, 04:12 AM   #18
Thinks s/he gets paid by the post
DrRoy's Avatar
 
Join Date: Dec 2015
Location: Michigan
Posts: 3,878
Our house is 8% of our NW.
__________________
"The mountains are calling, and I must go." John Muir
DrRoy is offline   Reply With Quote
Old 06-17-2022, 05:42 AM   #19
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
street's Avatar
 
Join Date: Nov 2016
Posts: 6,756
My home is ~5% of NW as of today with my portfolio down ~20%. I also remember the high interest rate in 1984 when I built my home. It was ~14% and I doubled my principal payments every month to avoid/void the interest on that second payment. After about a year and a half of that I paid the house off so no more high interest rate for me.
street is offline   Reply With Quote
Old 06-17-2022, 06:13 AM   #20
Thinks s/he gets paid by the post
The Cosmic Avenger's Avatar
 
Join Date: May 2016
Location: Mid-Atlantic
Posts: 2,168
Quote:
Originally Posted by Retireby45ish View Post
Yikes!

First, thanks for all the responses.
This has been a tough decision, but we are moving ahead. And one that overshadows years of frugal (miserly?) small ones. But as someone said, “not all decisions are financial” which is my life-lesson to learn (according to DW).

For those that said “this is coming too late…we were within the inspection period and could have backed out with no major penalty”. Until the ink is dry it’s never too late to assess all options (I have 2 more weeks).

I got a 7/1 ARM 4 weeks ago at 4.125. I will pay it off or refinance then because I need lower cash flow for ACA reasons.

So I guess the good thing in all this is I’ve locked in my rate in this rapidly raising rate environment. I wish it was 3% or so, as it was 3 months earlier, but I guess I’ll take that small win.
That's still lower than long-term market performance. We also paid off our mortgage early, but in hindsight I'd probably rather invest the excess, or at least part of it. At your rate, have you considered investing the extra money instead, at least until the market fully recovers, then switching? I am also debt-averse, and while that helped get me where I am today, I wish I had tempered it a bit sometimes and played the odds more.
__________________
-Looking to FIRE in the mid-2020s, which would be our mid-50s.
The Cosmic Avenger is offline   Reply With Quote
Reply


Currently Active Users Viewing This Thread: 1 (0 members and 1 guests)
 
Thread Tools Search this Thread
Search this Thread:

Advanced Search
Display Modes

Posting Rules
You may not post new threads
You may not post replies
You may not post attachments
You may not edit your posts

BB code is On
Smilies are On
[IMG] code is On
HTML code is Off
Trackbacks are Off
Pingbacks are Off
Refbacks are Off


Similar Threads
Thread Thread Starter Forum Replies Last Post
Poll - House value to net worth MichaelB FIRE and Money 83 08-01-2017 10:13 PM
House Value to Net Worth % beachfire FIRE and Money 157 08-01-2017 08:13 AM
Percentage of net worth tied up in house kevink Life after FIRE 142 12-17-2010 08:18 AM
How I Established my Net Worth WITH my House in it e86s54 FIRE and Money 19 10-26-2010 07:14 PM

» Quick Links

 
All times are GMT -6. The time now is 10:25 PM.
 
Powered by vBulletin® Version 3.8.8 Beta 1
Copyright ©2000 - 2022, vBulletin Solutions, Inc.