Curse you, Sean Keeley! I was going to write about house prices and their appreciation. He beat me to it. That’s okay. He’s writing for a national audience from Neighborhoods.com. I’m writing about my house and more than just appreciating its price.
Maybe I should put together a personal FAQ list. A real Frequently Asked Question list is not supposed to be some pre-ordained list of questions. A FAQ should provide answers to frequently asked questions, answer that people asked for, not scripted answers and questions that attempt to control the conversation. There are several that are common for me because I: retired early, became a millionaire, wrote a book about personal finance, lost 98% of my net worth, and continue to work at recovering from my Triple Whammy. More succinctly, people ask about my roller-coaster ride through America’s wealth classes and why I haven’t followed their advice, or their friend’s advice, or some other stranger’s advice.
Near the top of the list (I don’t keep count) is why I don’t sell my house. The assumption is that people hold onto houses for emotional reasons that overwhelm logic. The assumption is that someone with tight money issues is ignoring logic and hanging onto their house because they can’t imagine giving it up. I like my house and am glad I’ve been able to keep it, but I also keep it because of math.
Thanks to a difficult but successful mortgage modification struggle, my mortgage payments are now less than a thousand dollars per month. That’s less than most folks spend on an apartment. If I move, even to a smaller place than my small house, my housing bill would probably go up.
Even if my monthly housing expenses went down, they’d have to drop about 33% to equal the total cost and benefit. That’s because about one-third of my mortgage payment goes to paying down the principal on the house. A few hundred of those dollars are dollars I get back when or if I sell. They are an asset being traded for an asset.
Individual results will vary, but in general, housing prices are going up. Here’s the part that Sean Keeley goes into in more detail. Here’s also an exercise for any homeowner. Take your house’s value. Check with a few of the sources of real estate data for your neighborhood’s price rise. (Need help? Check with a broker.) Apply that to your house’s value. That’s how much your house is appreciating, maybe. Compare that to your monthly expenses. For some people, their houses are making more money sitting there than they are working. That asset growth, however, isn’t the same as income – but it is useful.
For me, in my house, in my neighborhood, on Whidbey Island, for the last year, my house’s appreciation is so close to my expenses that they’re effectively equal. For every month I live here, I accumulate one month’s living expenses – as long as the market doesn’t turn down before I sell.
Apply compounding. If my house’s price appreciates faster than my expenses, I should stay in my house as long as possible. For every year that is the case, the excess continues to increase.
Imagine a frugal person living in a house in some of the hottest neighborhoods in the nation. Because they need so little, every increase creates an increasingly larger buffer. If their income meets or exceeds their expenses, then their house becomes an impressive investment. In many ways, that’s the economic model that worked with the post-World War II era when prices started low and people were still frugal from the Great Depression, life-long careers with benefits were common, and housing was cheap because it was expanding into the innovation that was the suburb.
As we’ve experienced, the model can break. Inflation can rise. Housing bubbles can pop. Fixed incomes can be too limiting. Careers can vanish. The long-term general trend, however remains that spending less than you make and investing the rest is a good plan.
I didn’t plan this, but this is the way the world happens. I started this post reflecting on an earlier post. (Sean doesn’t get all of the credit or blame.) One year ago I wrote “My Rule Of 7 – One Day Off“. Check an even earlier post for details of My Rule of 7. Basically, because my house had appreciated enough to raise my net worth by $100,000 I decided to start taking one day off each week. That may not sound radical, but for several years previous I’d been taking off a day every two months.
I’d like to update that by announcing that I can now take two days off each week, but business is down as I took time to pass my real estate exam and get that aspect of my business operating, and neither my house nor my other investments haven’t appreciated by another $100,000.
The appreciation doesn’t trigger the next step in my Rule of 7, but it does continue to approximate my monthly expenses. That’s worth celebrating, too.
Because I’m a real estate broker now I spend more time diving into the data. The engineer in me enjoys pulling apart the various databases and data sources, checking their assumptions and methods, and realizing that no one really knows how much more a house is worth until someone sells it and someone buys it. Even then, the data are noisy because people sell and buy, and people are people, and people aren’t always logical – even when it is the largest purchase most people will make in their life. That’s not a surprise. The thing that changes a house into a home is emotion. A house became a home because someone cared.
I care about my house. Of all the places I’ve lived, it is the only one I consider home. I like it so much that I apologize to it for not taking better care of it. More income will mean better care. One way homeowners can turn some of that asset appreciation into income, or at least cash, is to take out a home equity loan. Depending on my business and several other factors, I might do that to pay for some maintenance. That might even increase the value of the asset, though it does so by increasing debt. I might only do that if I am confident I will also see increased income.
Despite all of that, I regularly review the logic and the math of selling. If I sell, how much do I get? If I sell, how far do I have to move to afford something else, preferably debt-free? I tried selling before, but that was in the slump when there were lots of sellers but few buyers. Now, South Whidbey has just passed through a record low number of sellers, which means some houses are being bought in days instead of months, and that prices are probably appreciated more rapidly. Because everything is changing, I conduct the review regularly.
And then, of course, there’s the other type of appreciation, the appreciation that made this house a home. The walls, windows, and roof protected me from winter. The grass and garden are growing. It’s a sunny day, and a rare one because I’m working from home instead of the real estate office, or the coworks (WIcoWorks in Clinton, WA), or any of my favorite coffeeshops and libraries. It is low tide on Cultus Bay. If I wasn’t writing this blog while waiting for a client’s phone call, I’d wander down to walk the square miles of exposed sand. I’ll enjoy the view of it, the Sound, and the cloud-shrouded Olympic Mountains as I sit and type. It is a small house (868 square feet), the smallest house I’ve owned, and the one I like best. After living in it for the last decade or so, I can imagine living in something even smaller.
I imagine living in other places in other styles, but most of those imaginings are based on the extremes of contingencies plans in case of emergencies, or dreamy possibilities based on winning the lottery jackpot. A tiny house in some place remote and cheap is appealing as a retreat, in case something major goes amiss. There are some nice private islands for sale that are appealing as a different kind of retreat. Coincidentally, my main objective in either case it to take time to recover my health and fitness.
In the meantime, I’ll continue to work (about six days a week, but schedules shift), enjoy the price appreciation of my house, appreciate my home, and continue to playfully shake my fist at Sean for scooping my story.