Using Net Worth to keep me sane - hopefully

[traineeinvestor]

Also true of holdings in your portfolio.

True, but this does not mean that an unrealised loss is not a permanent loss ov value - look at all the people who got caught holding shares in banks which, although still standing, are a long way from pre-crisis prices and will take a very very very long time to get back to those levels (if ever). Looking back a little further and there are a lot of tech companies that are still worth only a fraction of what they were at the peak and (IMHO) have very little chance of regaining those highs. For all practical purpsoes the loss is still very real regardless of whether or not it has been realised.

 

[shotgunner]

My house is the one asset I have that I hope goes down in value. Since taxes are based mostly on the value of my home I'm hoping that my taxes drop along with the value. Since I have to live somewhere, really it's just a roof and a place to stay. If my house drops in value and I have to sell it most likely the next houses value will also drop, so it's a wash either way. In the mean time maybe my taxes will drop.

That does not work for me in NH. Valuation of my house for tax purposes peaked in 2007 at 210,700 with an annual tax bill of $4077.15. Last year my valuation was $176,000 (15% drop) and taxes at $4106.08 (up just under 1%). The beast must be fed.

Some young neighbors on the next street bought in 2005 and walked away from the house and mortgage two weeks ago after finding some extensive carpenter ant damage. I am guessing they were upside down on their mortgage and the repairs were the final straw.

 

[Walt34]

Like some others I don't look at the value of the house in terms of what it would sell for. DW does, but to me the only times that matters is when we buy it and when we sell it. In between it's a nice place to live.

That said, we bought in 2001, before the huge runup and rundown in prices so "buyer's regret" isn't an issue. The ones selling seem to be going for about what we paid or perhaps a bit more, so far I guess it's a wash. Which isn't bad considering the losses others have had.

 

[utrecht]

I don't understand why people worry about the value of their house. As long as you pay a fair price for the house (not more than other comparable houses in your area), then you are fine. If you pay $250,000 and 2 years later the house is only worth $200,000...so what? If you needed to sell it and move, you would get less than you paid but the new house you bought would also cost less that it would've 2 years ago.

So unless you need to move from a place with a depressed market into an area with a thriving market, whats the problem?

 

[jdw_fire]

I don't understand why people worry about the value of their house. As long as you pay a fair price for the house (not more than other comparable houses in your area), then you are fine. If you pay $250,000 and 2 years later the house is only worth $200,000...so what? If you needed to sell it and move, you would get less than you paid but the new house you bought would also cost less that it would've 2 years ago.

So unless you need to move from a place with a depressed market into an area with a thriving market, whats the problem?

well lets say you have that house you paid $250k for and now you are getting ready to down size. you are right if you own it F&C as you get $200k for it and now the house you are moving into (which used to cost $150k) costs $120k, no money out of your portfolio to get your new house (in fact you get to put money back into your portfolio). the problem would show up if you have a mortgage on the property and because of the falling prices you have lost a major part of your equity. in that case the wash you describe doesnt happen. lets say you had made a down payment of 20% when you bought the $250k house, that means when you sold for $200k you got zip out of your house and you have to take money out of your portfolio to buy your new house, at least the $24k down payment (again 20%). do you see the problem now?

 

[kaudrey]

dex - I think a lot of us use "mental games" to keep us sane. When the market was tanking, I just stopped looking at my NW, probably for a year and a half. I kept investing with every paycheck, but just went with "I'm buying low!" mentality.

As for houses, I bought my townhouse in 1999 in DC suburbs, so although prices are down quite a bit, I'm still doing fine there. I am about to close on my dream "log cabin" in the woods out in WV, and for that my investable portfolio is going down a chunk for the downpayment. So, my numbers at the end of this year will be lower by quite a bit, but at least I have some built in equity in the new place right away.

My mental game now-a-days is that I am not retiring for quite a while, the mortgage on the townhouse will be paid off by then, and selling the townhouse in 10-15 years will give me plenty of money to pay off the cabin mortgage and provide a decent boost to my portfolio. I just keep remembering the long-term goals.

 

[Westernskies]

The thing that upsets me about the housing market is how many people are doing short sales because they bought at the peak . Some of them need a good dose of reality in sometimes you make an investment and you lose . Real estate is not always a winning situation . These short sales are dragging down the market even further .

But, Moemg, these folks are entitled to these short sales. It's their right to dump the downside risk on the rest of us, but the upside gain is their entitlement! It was the big bad mortgage company that forced them to buy those homes. And it is the government's role to make sure that everyone gets a trophy!

 

[DeborahB]

I just look at my house as a place to live. We bought a semi-fixer-upper in 2002 (built in 1963) - the original owner had died. Nothing had been done in 15+ years so we got a pretty good price on it. We've done a lot to make it more up to date and I think we could at least get back what we've put into it.

However, it is my investment portfolio that is key to my survival - not the house!

 

[toofrugalformycat]

Good point. I think there are a couple of issue around the home for me. One is losing money - obvious.
The other are:
The lack of freedom - being able to easily sell and move.
Acknowledging having made a mistake.
Not knowing how low housing prices will go.

Of all the above, I'll bet the "acknowledging having made a mistake" is the hardest for you. It was for me when a similar thing happened to me decades ago. But it wasn't really a mistake - you wanted to buy a house, you bought a house, and like the sparrows in a hurricane that we all are, the value is down for now.
But you are happy living there. That is the most important thing.
Why beat yourself up about it? Do as I say, not as I do. The only time I ever bought a house, the same thing happened. It wasn't the money loss (on paper only), it was the realization that I wasn't as smart as I thought I was. But neither is anybody else.
The novelist John D. Macdonald's books can be a real comfort. He wrote about the situation in a lot of his novels. When the market is going up, everyone thinks they are a genius. But even genuine geniuses don't know everything.

 

[dex]

Of all the above, I'll bet the "acknowledging having made a mistake" is the hardest for you. It was for me when a similar thing happened to me decades ago. But it wasn't really a mistake - you wanted to buy a house, you bought a house, and like the sparrows in a hurricane that we all are, the value is down for now.
But you are happy living there. That is the most important thing.
Why beat yourself up about it? Do as I say, not as I do. The only time I ever bought a house, the same thing happened. It wasn't the money loss (on paper only), it was the realization that I wasn't as smart as I thought I was. But neither is anybody else.
The novelist John D. Macdonald's books can be a real comfort. He wrote about the situation in a lot of his novels. When the market is going up, everyone thinks they are a genius. But even genuine geniuses don't know everything.

Thanks, good points.
I would also add, it is difficult to see what you worked so hard to accumulate disappear and what it could have bought - not that I want to buy anything big.

Right now with the stock market and maybe with the house, if I could get back to even I'll get out.

I think it is important to acknowledge these things - even if you don't change your behavior; so you can take responsibility for it.

Excluding my house, I have about 50% in cash. I'm not changing any of my behavior because of the stock market or housing situation.

 

[shotgunner]

Dex, right now my paid off house is costing me about $800 a month to live there with everything, heat, electric, cable, insurance, taxes etc. I've got about 1000 sq ft living space, full basement, 2 car garage, deck and hot tub. There is no place around where I live I could rent for less money. It's good investment for cash outflow in retirement.

 

[Birdie Num Nums]

My house is the one asset I have that I hope goes down in value. Since taxes are based mostly on the value of my home I'm hoping that my taxes drop along with the value. Since I have to live somewhere, really it's just a roof and a place to stay. If my house drops in value and I have to sell it most likely the next houses value will also drop, so it's a wash either way. In the mean time maybe my taxes will drop.

Depends upon where you live. In Washington state, a drop in value does not necessarily a similar drop in taxes. Read here.

 

[shotgunner]

Depends upon where you live. In Washington state, a drop in value does not necessarily a similar drop in taxes. Read here.

Please see my earlier post of how mine went up while home assessed value dropped.