I was speaking with a good friend, a prominent realtor in our area - she's helped us purchase our current home and a few others. She said, "I know you write a blog. Have you ever considered writing about your move from a financial perspective? It's starting to feel like 2005 again. People are buying homes and moving into places that are really expensive. Don't get me wrong, I make money when this happens, and that's good, but I think people are behaving like they will have jobs and money forever."
I can understand why. Things are looking really good today. Wow! Look at the stock market!
And it looks like it's a really good time to buy a house. Look how low home prices are!
And take a look at these interest rates! Holy Schmoly!
Perhaps it
is a great time to buy a house or a bigger, nicer one than the one you live in today. My wife and I have purchased 7 homes in our 23 years together. Some moves were due to corporate moves, some due to care requirements for our son, and others were just our desire to have a nicer home than we had before. We've leaned a few things along the way I thought I would share. They're pretty obvious, so don't laugh at me. These were things we didn't realize at one point or another.
1) Homes are not "great" investments. Oh, sure there have been times when the housing market has soared and people made big bucks selling their houses. But if your like us, you live in the house you own and the truth is, the price of a home today costs as much as it did in the 17th century.
Homes generally appreciate at 0.2%. So, you're probably not beating inflation if you are using this as a retirement savings mechanism.
2) The home mortgage interest deduction is awesome but it may not be around forever. There are some
huge tax benefits to owning home
and carrying a big mortgage. If you itemize your deductions,you can deduct mortgage interest and real estate taxes from your federal return. Being a fiscal conservative, I generally don't support government subsidies of industries, and yes, I believe this is a subsidy to the housing industry. Some have estimated that this deduction adds $70 - 100B to the US budget deficit annually.
3) Selling, buying, and moving is really expensive.
Commissions - If you're going to use realtor to sell your home (and you probably should) you'll pay about 6% of the sales price in commissions.
The average home price in 2010 was $272,000 - so that's $16,320.00 that will come out of the proceeds of your sale.
Closing Costs - When you buy that new $272,000 average-priced home, you can estimate that you'll somewhere between 2-5% in closing costs. Let's say 3% for this example. That means $8,160 is what you'll spend to get that next house.
Moving Expenses - I think my company once paid over $10,000 to pack and move my family and our possessions to a city only 2 hours away. While you can pay much less by moving yourself, there are still a lot of costs: rentals, packing, gas, time, and of course, making the "big ask" of your friends and family: "Hey … uh, Bob … what are you doing this weekend? You … you want to come over?"
4) Cash is King - If you don't have 20% to put down on your new home, I strongly recommend you ask yourself if you can really afford it. Putting down 20% is really hard. That means for our average $272,000 home, you'll need $54,400.00. Otherwise, you'll be paying private mortgage insurance (PMI) which could tack another 0.5% or more onto your rate. So, that 4.5% interest rate you got effectively becomes 5% and that can add up to a lot of extra money per year. For our example, if you put 5% down on our $272,000 average home, you'd pay about $1300 extra per year in PMI.
5) Size Matters - Bigger homes usually mean higher taxes, generally higher heating and cooling bills, higher maintenance, and more time. In general, more home = more money out the door every month.
Just over a year ago, I wrote
It's Complicated, a post about the unnecessary complexities I had created in my life that were consuming my time, energy, and financial resources. Since then, we've sold our home and given up many of our possessions. We bought, remodeled, and moved into a significantly smaller house. I can't lie to you; it's been painful. Moving is one of the top stressors in life. The disruption in routine alone can make you crazy.
After all this negative talk, I have to say that I don't think there's anything wrong with living in a large and luxurious house if you can afford to do so. But sometimes I wonder if, in their quest for larger or better house, people are really looking for something else.
I'm learning the hard way that houses aren't necessarily the same things as homes. I think we all should live in a good home. To me good homes are about, family, friends, love, good times, growing up, growing old, laughter, tears, warmth, safety, security, a place to rest. Those things can happen in a variety of settings from glorious mansions to dilapidated shacks.
I guess, in the end, I am trying to learn to be simply content with what I have today.
Philippians 4:11-12-
Not that I speak from want; for I have learned to be content in whatever circumstances I am. I know how to get along with humble means, and I also know how to live in prosperity; in any and every circumstance I have learned the secret of being filled and going hungry, both of having abundance and suffering need.