Join Early Retirement Today
Reply
 
Thread Tools Search this Thread Display Modes
Housing costs ruining my RE plans?
Old 05-07-2021, 09:47 AM   #1
Recycles dryer sheets
 
Join Date: Oct 2016
Posts: 162
Housing costs ruining my RE plans?

I have been targeting RE for this fall, but the housing market is throwing me for a loop.

My number is 2.5M, out of which I planned to pay cash for a house worth approximately 500k. In the past year those same homes now cost 700k+, which is basically screwing my budget. Before covid my plan was on track.

I feel depressed that I’ve worked so hard to get to not a small amount of NW (way more than I ever thought I’d accrue) and yet now be faced with chasing “more”.

My savings rate is high, although my pay was cut by 25% this year due to covid. (Not sure if megacorp will use this as an excuse to become the new normal or what. Not exactly counting on their hearts to turn fuzzy.)

If I keep to my plan I’m basically looking at 2 more years’ work now, which I kind of dread. Worse if prices keep rising I guess I will have to totally reassess my dreams. Maybe this is called “staying flexible in retirement”??

What are your thoughts on this? Thanks.
tmitchell 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 05-07-2021, 09:56 AM   #2
Thinks s/he gets paid by the post
Ready's Avatar
 
Join Date: Mar 2013
Location: Southern California
Posts: 3,741
What is happening to the rental market in your area? In Southern Cal home prices are at an all time high but rentals are dropping fast. So this is a good time to rent until the market turns. If you can just rent for a few years in your neighborhood eventually prices will have to drop. They can’t go up forever.
Ready is offline   Reply With Quote
Old 05-07-2021, 10:02 AM   #3
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
OldShooter's Avatar
 
Join Date: Mar 2017
Location: City
Posts: 6,662
Well, I would view it as a risk question.
1) If I deplete my nest egg chasing high prices does that risk changing my retirement lifestyle?
2) If I buy a high priced home can I count on it holding and increasing in value or could my market be in a bubble that could cause my equity to go backwards? (Possibly California or other states with declining populations.)
3) Are there external risks in my market that could hurt me as a homeowner, like the impending Illinois pseudo-bankruptcy?
4) Is there a target market change that would mitigate risks 1-3 because of lower, less frothy, house prices? Would that kind of mitigation be acceptable from a lifestyle point of view?
5) (your question) Is another two years of work acceptable as a risk-reducer?
__________________
Ignoramus et ignorabimus
OldShooter is offline   Reply With Quote
Old 05-07-2021, 10:20 AM   #4
Full time employment: Posting here.
 
Join Date: Apr 2011
Location: Castro Valley
Posts: 698
The way I see it you have a few choices.

1) Retire and absorb the extra $10K/yr in expenses (Mortgage the $200K)
2) Retire and buy a $500K house and not the $700K house (lower your expectations)
3) Retire and rent
4) Work until you feel you can afford what you want.
jkern is offline   Reply With Quote
Old 05-07-2021, 10:26 AM   #5
Recycles dryer sheets
 
Join Date: Oct 2016
Posts: 162
Quote:
Originally Posted by Ready View Post
What is happening to the rental market in your area? In Southern Cal home prices are at an all time high but rentals are dropping fast. So this is a good time to rent until the market turns. If you can just rent for a few years in your neighborhood eventually prices will have to drop. They can’t go up forever.
Yes in fact I'm in Socal and sold my condo last year to generate the money I was hoping to use for a home, so I am renting. Was just hoping to RE and move to a little quieter area. But it seems all the work-from-home folks had the same idea!
tmitchell is offline   Reply With Quote
Old 05-07-2021, 11:15 AM   #6
Full time employment: Posting here.
 
Join Date: Aug 2012
Posts: 688
Let's say you used a 4% wr for your budget.
After you initially paid cash (500k) that would have left you 2m or 80k per year. Now if you have to pay 700k you are left with 1.8m or 72 k per year.
add property tax and insurance but then subtract the rent and renters insurance you are now paying. You may find that your net spending would be the same or even slightly better.
Have you done that math?
finnski1 is offline   Reply With Quote
Old 05-07-2021, 11:18 AM   #7
Thinks s/he gets paid by the post
Major Tom's Avatar
 
Join Date: Nov 2009
Location: SF East Bay
Posts: 3,629
Quote:
Originally Posted by Ready View Post
If you can just rent for a few years in your neighborhood eventually prices will have to drop. They can’t go up forever.
I'd amend that last sentence to, "They can't keep going up at the same rate as they have been, indefinitely."

House prices might plateau at some point, for an extended period, or they might come down. Hard to know when any of this will happen though.
__________________
Contentedly ER, with 3 furry friends (now, sadly, 1).
Planning my escape to the wide open spaces in my campervan (with my remaining kitty, of course!)
On a mission to become the world's second most boring man.

Major Tom is offline   Reply With Quote
Old 05-07-2021, 11:49 AM   #8
Recycles dryer sheets
 
Join Date: Oct 2013
Posts: 479
If $200,000 means the difference between retiring and not retiring, perhaps you're cutting it too close and you should keep working for a little while longer. What happens if you retire and we have a market correction that causes your portfolio to drop $200,000. Are you going to go look for a job?
freedomatlast is offline   Reply With Quote
Old 05-07-2021, 11:51 AM   #9
Thinks s/he gets paid by the post
Major Tom's Avatar
 
Join Date: Nov 2009
Location: SF East Bay
Posts: 3,629
Quote:
Originally Posted by freedomatlast View Post
If $200,000 means the difference between retiring and not retiring, perhaps you're cutting it too close and you should keep working for a little while longer. What happens if you retire and we have a market correction that causes your portfolio to drop $200,000? Are you going to go look for a job?
Well, it's not just the extra $200K. It's also the fact that property taxes will be significantly higher on a 700K house than a 500K house - and those are a recurring expense.
__________________
Contentedly ER, with 3 furry friends (now, sadly, 1).
Planning my escape to the wide open spaces in my campervan (with my remaining kitty, of course!)
On a mission to become the world's second most boring man.

Major Tom is offline   Reply With Quote
Old 05-07-2021, 12:17 PM   #10
Moderator
Aerides's Avatar
 
Join Date: Nov 2015
Posts: 8,259
Quote:
Originally Posted by freedomatlast View Post
If $200,000 means the difference between retiring and not retiring, perhaps you're cutting it too close and you should keep working for a little while longer. What happens if you retire and we have a market correction that causes your portfolio to drop $200,000. Are you going to go look for a job?
I mean yes and no. If the OP assumed to pay $500k for the house, and then had a solid plan that the balance of 2M was good, with, say, a 3% WD, now, dropping that to 1.8m after the house difference, the WD becomes 3.33%.

In reverse, if the OP had been planning a 4% SWR, $80 budget, that's now chopped to 72k. Plus increased taxes. I don't view that as cutting too close, that's goal posts moving.

Either way a 10% shift would probably have given most any of us pause when about to ER.

Still, OP, have your investments not seen some benefit in the past 12 months to close the gap? It shouldn't really be a deficit of $200k. Perhaps, if you go ahead and ER, use the time to move around some of those small towns - keep renting a bit longer? I don't think housing will come down in the short term, but neither should the market.
Aerides is offline   Reply With Quote
Old 05-07-2021, 05:33 PM   #11
Recycles dryer sheets
 
Join Date: Oct 2016
Posts: 162
Quote:
Originally Posted by Aerides View Post
I mean yes and no. If the OP assumed to pay $500k for the house, and then had a solid plan that the balance of 2M was good, with, say, a 3% WD, now, dropping that to 1.8m after the house difference, the WD becomes 3.33%.

In reverse, if the OP had been planning a 4% SWR, $80 budget, that's now chopped to 72k. Plus increased taxes. I don't view that as cutting too close, that's goal posts moving.

Either way a 10% shift would probably have given most any of us pause when about to ER.

Still, OP, have your investments not seen some benefit in the past 12 months to close the gap? It shouldn't really be a deficit of $200k. Perhaps, if you go ahead and ER, use the time to move around some of those small towns - keep renting a bit longer? I don't think housing will come down in the short term, but neither should the market.
I have definitely seen benefit but am perhaps too conservative with a 60/40 portfolio. If it were today the deficit would be closer to $150k yes. I suppose if the markets trend as they are I could wiggle my way into a workable situation. But as some others noted now a 200k buffer is gone (or 150k).

I do think I’ll earn some money in RE at some point, but at least to begin it seemed like fun to just hang it up and see how I feel. Maybe I’m being premature but jeez. Never thought I’d be in a predicament with 2.5 mil.
tmitchell is offline   Reply With Quote
Old 05-07-2021, 06:34 PM   #12
Recycles dryer sheets
 
Join Date: Dec 2007
Posts: 242
Quote:
Originally Posted by tmitchell View Post
What are your thoughts on this?
OP, I think you do have a number of options:
1- Buy a house now for $700K cash. This option hurts a bit, but probably the most beneficial to your good sleep. Nothing to worry regarding future housing market. You will not care if the housing market will go up or down in the next xx years.
2- Using 4->5% of the $500K (or $700K) as "free" rent money and rent in the next few years. Since you have not spent $700K to buy a house, you can put that $ in the market with your favorite AA. You should be able to get 4-5% on average per year. Do this if you feel strongly that the housing market will cool down. You can buy at a lower price point later if the housing market will actually cool down.
3- Buy a house now ,but get a mortgage at very low interest rate. Say put $140K down and get a mortgage of 560K. Put the 560K into the market. Do this if you have to have a house now (peace of mind + better living environment), and you feel strongly that the market will outperform the low mortgage interest rate. You can decide later when/if you want to pay off the mortgage.
#2 and #3 options could be a smart bets, but you will care how the housing market and/or the stock market will perform in the future.
There is no guarantee that any of the above options will be most beneficial. It will be up to what level of risk you want to take. Good luck
ut2sua is offline   Reply With Quote
Old 05-07-2021, 07:57 PM   #13
Recycles dryer sheets
troutnut1's Avatar
 
Join Date: May 2014
Location: Big Sky Country, Montana
Posts: 162
Quote:
Originally Posted by Major Tom View Post
Well, it's not just the extra $200K. It's also the fact that property taxes will be significantly higher on a 700K house than a 500K house - and those are a recurring expense.
This is not normally true.While property taxes are an “ad valorem” (according to value) tax, the actual calculation is more like roommates splitting the bills of the community in which they live. If ALL houses double in value (or halve in value) and the county and state maintain the same level of spending, the mill levy raises (or lowers) and the county collects the same amount of money. This is the reason people did not see lower taxes when the values dropped in 2008-2009. Nobody fired any police, school teachers, or rolled up any roads, and taxes stayed the same in spite of value decreases. Spending money by counties and states raises taxes. Voting yes on everything raises taxes. Building room additions and doubling your square footage raises taxes (because your value goes up but your neighbors values didn’t). But us all going up together does not have that same effect. I suspect taxes will go up everywhere soon for the same reason we see when we go to the grocery store, buy fuel, or pickup lumber. But it will not be because our values all went up a certain %. It will because our dollars value is decreasing.
troutnut1 is offline   Reply With Quote
Old 05-07-2021, 09:07 PM   #14
Recycles dryer sheets
Boose's Avatar
 
Join Date: Apr 2011
Location: So Cal
Posts: 141
I'm following this thread with interest. We're listing our SoCal condo next month (dissatisfaction with neighborhood and rising HOA costs). While we expect to net a tidy sum from the sale that will ease our purchase of a subsequent home in another state, I've been astonished by the rate at which housing prices have risen in other parts of the country - parts that are not even close to traditionally steep markets like CA or NY. Prices are blowing past the estimates I plugged into our retirement budget, although healthcare estimates are coming in lower. We're renting for at least a year until we find the right area to re-settle. Hopefully the craziness like bidding wars and no-inspection clauses will subside by then.
__________________
Done 1/5/21, age 49
Boose is offline   Reply With Quote
Old 05-07-2021, 10:30 PM   #15
Thinks s/he gets paid by the post
Ally's Avatar
 
Join Date: Feb 2011
Location: West
Posts: 1,324
Would you consider a move to another state? $500,000 would go much farther in Texas, for example.
Ally is offline   Reply With Quote
Old 05-07-2021, 10:55 PM   #16
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
 
Join Date: Feb 2013
Posts: 7,353
Quote:
Originally Posted by Ally View Post
Would you consider a move to another state? $500,000 would go much farther in Texas, for example.

Or even within California there are less expensive areas, especially if you are retired and don't need to live within commute distance of a major job market. I just looked up Fairfield near the Bay Area and that had a median sales price of $585K.
__________________
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 05-07-2021, 11:03 PM   #17
Thinks s/he gets paid by the post
 
Join Date: Apr 2008
Posts: 1,298
Quote:
Originally Posted by Ally View Post
Would you consider a move to another state? $500,000 would go much farther in Texas, for example.
Maybe, but if you are considering Central Texas, better hurry. We moved here 2.5 years ago, purchasing a house being built in one of the typical housing tracts. House was purchased for less than $500,000, and that included some upgrades to the kitchen cabinets, slide-out drawers for the lower kitchen cabinets, granite countertops throughout, 3rd car garage addition, etc.

We moved in two years ago. Comparable houses selling in the neighborhood the past 6-9 months now have our house valued at least $150,000 more than what it was purchased for. A lot of people are moving from the urban areas to the suburbs. Some driven by the COVID mandates. Some driven by the fact many can now work from home, so commuting has been reduced or eliminated.

The bad news is Texas property taxes are driven by the value of the house, and while there is a cap, they can rise up to 10% per year (somewhat less for 65+ as school taxes are locked at first property tax bill). This could get out of hand in a hurry. Long time Texans, especially those on fixed incomes, have been barking about this, and I don't blame them one bit.
statsman is offline   Reply With Quote
Old 05-07-2021, 11:16 PM   #18
Moderator Emeritus
W2R's Avatar
 
Join Date: Jan 2007
Location: New Orleans
Posts: 44,956
Quote:
Originally Posted by jkern View Post
The way I see it you have a few choices.

1) Retire and absorb the extra $10K/yr in expenses (Mortgage the $200K)
2) Retire and buy a $500K house and not the $700K house (lower your expectations)
3) Retire and rent
4) Work until you feel you can afford what you want.
I like this answer.

I think if it was me, I'd choose #2 and look for a $500K house in a cheaper location, if you can find one before prices go up any further.

If I didn't want to move to a new location, I'd choose #1 and cut back on my expenses.

I wouldn't choose #3 because rents might be headed upwards too.

I'd prefer not to choose #4, but sometimes we gotta do what we gotta do. It would be a crummy 2 years, but two years from now it won't matter.
__________________
Happily retired since 2009, at age 61.
W2R is offline   Reply With Quote
Old 05-07-2021, 11:34 PM   #19
Recycles dryer sheets
 
Join Date: Mar 2015
Location: Phoenix
Posts: 127
Quote:
Originally Posted by troutnut1 View Post
This is not normally true.While property taxes are an “ad valorem” (according to value) tax, the actual calculation is more like roommates splitting the bills of the community in which they live. If ALL houses double in value (or halve in value) and the county and state maintain the same level of spending, the mill levy raises (or lowers) and the county collects the same amount of money. This is the reason people did not see lower taxes when the values dropped in 2008-2009. Nobody fired any police, school teachers, or rolled up any roads, and taxes stayed the same in spite of value decreases. Spending money by counties and states raises taxes. Voting yes on everything raises taxes. Building room additions and doubling your square footage raises taxes (because your value goes up but your neighbors values didn’t). But us all going up together does not have that same effect. I suspect taxes will go up everywhere soon for the same reason we see when we go to the grocery store, buy fuel, or pickup lumber. But it will not be because our values all went up a certain %. It will because our dollars value is decreasing.
If you buy a house in California, the assessed value is equal to the purchase price. Its like 1.25% or so.
So yes buy a 700000 house and your property taxes start significantly higher than a 500000 house.
JDPascale is offline   Reply With Quote
Old 05-08-2021, 01:46 AM   #20
Thinks s/he gets paid by the post
teejayevans's Avatar
 
Join Date: Sep 2006
Posts: 1,557
Quote:
Originally Posted by jkern View Post
The way I see it you have a few choices.

1) Retire and absorb the extra $10K/yr in expenses (Mortgage the $200K)
2) Retire and buy a $500K house and not the $700K house (lower your expectations)
3) Retire and rent
4) Work until you feel you can afford what you want.

5) Retire to a different area with lower housing prices.
teejayevans 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
Housing costs imoldernu Other topics 26 11-21-2019 07:26 PM
Medigap Plans premium costs - AARP online, others not Telly Health and Early Retirement 16 05-15-2018 04:33 PM
Budgeting Question re: Housing Costs Cheesehead FIRE and Money 15 08-13-2015 02:01 AM
Are sleazy stockbrokers ruining the US economy? brewer12345 FIRE and Money 23 07-25-2008 08:59 PM

» Quick Links

 
All times are GMT -6. The time now is 01:27 AM.
 
Powered by vBulletin® Version 3.8.8 Beta 1
Copyright ©2000 - 2021, vBulletin Solutions, Inc.