Just a 46-year-old mom of 2 in Northern California. My kids are Monkey Monkey(MM) and Drama Llama (DL). I am married to Monkey Hubby (MH).
http://www.freemoneyfinance.com/2007/07/what-percent-of.html...
Just an interesting discussion. Something I hadn't really thought of and found it hard to quantify in terms of living in a High COL area. I find we have little control in this equation ourselves. Is it bad we bought a home that appreciated a ton? I don't think it was through no fault of our own. So our house appreciates more than we can save, what's so bad about that?
I think it is much more important to focus on buying what you can truly afford, and keeping housing costs down in general, which was always our goal. Why did we buy a condo immediately out of school? Because it was cheaper than renting. Why did we move 2 hours away? To limit our housing costs.
At the same time we thought long and hard about what and where we would buy. If we had to sink $300k to get into a house it was going to be a house that was set up for some long-term appreciation. A house that could hold its value well. So we have a house that has done just that (& then some). But we're bad off because 80% of our net worth is in our house??? Should we just have bought a house that couldn't hold its value?
Of course, I think the point is twofold. When you buy in a high COL area the affordability of a home AND limiting your housing costs are just the MOST important factors by far. But maybe this exercise is important to remember not to rely on the value of your home as a factor of your net worth. I certainly see that point. It's not like I look at my house and say, "wow - I don't need to save fore retirement." & that is probably a good point. I am more likely to pay little attention to it as far as our overall financial goals.
Affordable housing locked in for life? check! Moving on...
While I have many friends who are in the 20-40% range who can't afford their mortgage...
I do notice that having so much of our net worth tied up in our house has changed one thing about our strategy. While so many people here look very favorably upon prepaying their mortgage as a matter of comfort, I feel the opposite. Sinking more cash into an asset that is already so overvalued, it just makes me feel queasy. What is the point of making ourselves more house rich? Having all of our eggs in the house basket? Of course this comes also from the comfort of knowing we could simply move (even in the area if we downsized) to pay off our mortgage. That our next door neighbor pays another $500/month over our mortgage to rent a house half as big. So it is this equity richness that has changed our feeling greatly about carrying a mortgage. I feel more comfort carrying a mortgage than not around here.
But it is impossible to keep the net worth of our house in line with the rest of our net worth. Heck, our parents both have houses that they bought in the 70s that are long paid off and worth 10-15 times what they paid, today. I would venture to guess that in both cases their net worth is more than 50% home, but means little. They have saved plenty for retirement and don't intend to sell their houses for retirement monies. I think that is more important than ratios. I agree that you want a paid off home in retirement and that you don't want to rely on it for cash/retirement. Agreed agreed. But having 80-90% of our net worth tied up in our home in our 20s reflects little of how we plan to retire. We actually plan to pay off our home in our 40s and look at our house as a backup/emergency plan. IT feels nice to know you can move anywhere in the country and pay cash for a house. Doesn't mean we're counting on it overall. Just another leg to stand on if something horrible were to happen to us financially. Another emergency fund, another plan.
Maybe in some areas where housing appreciation is steady/muted you can keep better control of your net worth and your house as a percentage of said net worth.
As for me I make no apologies for the fact that my house is 80% of my net worth today. I think it would be great if it stays that way - LOL. 20%, 90%, means little difference to me. As long as my retirement is sufficient and my ducks in a row, its the best I can do rather than make sense of much else in such an insane housing market. Looking back to our parents as an example this "bubble" is 40 years in the making... From what we can tell not much has changed in 30 years. IT was insanely expensive then, and still is. As such, none of the regular rules of thumb seem to apply in the land of insanity...
We might receive some hefty inheritances, we may move somewhere cheaper and retire young (all due to the housing market). Lord knows. But if the market crashes I don't see it affecting our lifestyle or our overall strategy. Its just a perk in the meantime I guess. You can't look at it as much else I guess. We are just lucky it isn't our handicap or achilles heel as it is for most young people around here. Trying to figure out how to afford rent or mortgage. I am glad not to worry about that - we worried about it plenty in our 20s.
Just an interesting discussion. Something I hadn't really thought of and found it hard to quantify in terms of living in a High COL area. I find we have little control in this equation ourselves. Is it bad we bought a home that appreciated a ton? I don't think it was through no fault of our own. So our house appreciates more than we can save, what's so bad about that?
I think it is much more important to focus on buying what you can truly afford, and keeping housing costs down in general, which was always our goal. Why did we buy a condo immediately out of school? Because it was cheaper than renting. Why did we move 2 hours away? To limit our housing costs.
At the same time we thought long and hard about what and where we would buy. If we had to sink $300k to get into a house it was going to be a house that was set up for some long-term appreciation. A house that could hold its value well. So we have a house that has done just that (& then some). But we're bad off because 80% of our net worth is in our house??? Should we just have bought a house that couldn't hold its value?
Of course, I think the point is twofold. When you buy in a high COL area the affordability of a home AND limiting your housing costs are just the MOST important factors by far. But maybe this exercise is important to remember not to rely on the value of your home as a factor of your net worth. I certainly see that point. It's not like I look at my house and say, "wow - I don't need to save fore retirement." & that is probably a good point. I am more likely to pay little attention to it as far as our overall financial goals.
Affordable housing locked in for life? check! Moving on...
While I have many friends who are in the 20-40% range who can't afford their mortgage...
I do notice that having so much of our net worth tied up in our house has changed one thing about our strategy. While so many people here look very favorably upon prepaying their mortgage as a matter of comfort, I feel the opposite. Sinking more cash into an asset that is already so overvalued, it just makes me feel queasy. What is the point of making ourselves more house rich? Having all of our eggs in the house basket? Of course this comes also from the comfort of knowing we could simply move (even in the area if we downsized) to pay off our mortgage. That our next door neighbor pays another $500/month over our mortgage to rent a house half as big. So it is this equity richness that has changed our feeling greatly about carrying a mortgage. I feel more comfort carrying a mortgage than not around here.
But it is impossible to keep the net worth of our house in line with the rest of our net worth. Heck, our parents both have houses that they bought in the 70s that are long paid off and worth 10-15 times what they paid, today. I would venture to guess that in both cases their net worth is more than 50% home, but means little. They have saved plenty for retirement and don't intend to sell their houses for retirement monies. I think that is more important than ratios. I agree that you want a paid off home in retirement and that you don't want to rely on it for cash/retirement. Agreed agreed. But having 80-90% of our net worth tied up in our home in our 20s reflects little of how we plan to retire. We actually plan to pay off our home in our 40s and look at our house as a backup/emergency plan. IT feels nice to know you can move anywhere in the country and pay cash for a house. Doesn't mean we're counting on it overall. Just another leg to stand on if something horrible were to happen to us financially. Another emergency fund, another plan.
Maybe in some areas where housing appreciation is steady/muted you can keep better control of your net worth and your house as a percentage of said net worth.
As for me I make no apologies for the fact that my house is 80% of my net worth today. I think it would be great if it stays that way - LOL. 20%, 90%, means little difference to me. As long as my retirement is sufficient and my ducks in a row, its the best I can do rather than make sense of much else in such an insane housing market. Looking back to our parents as an example this "bubble" is 40 years in the making... From what we can tell not much has changed in 30 years. IT was insanely expensive then, and still is. As such, none of the regular rules of thumb seem to apply in the land of insanity...
We might receive some hefty inheritances, we may move somewhere cheaper and retire young (all due to the housing market). Lord knows. But if the market crashes I don't see it affecting our lifestyle or our overall strategy. Its just a perk in the meantime I guess. You can't look at it as much else I guess. We are just lucky it isn't our handicap or achilles heel as it is for most young people around here. Trying to figure out how to afford rent or mortgage. I am glad not to worry about that - we worried about it plenty in our 20s.
July 17th, 2007 at 03:15 pm 1184685302