Announcement

Collapse
No announcement yet.

Housing goalposts keep moving!

Collapse
X
 
  • Filter
  • Time
  • Show
Clear All
new posts

  • Housing goalposts keep moving!

    When I first started out as an attending about 6 years ago, my SO and I were saddled with significant loans – about $530k between both of us. We’ve been following WCI and bogleheads for years beforehand and were eager to get started on digging us out of the debt pit. Our plan was to use PSLF for my loans, and to pay off the rest the old fashioned way. If PSLF didn’t happen, we had a side fund. If it did, we had a potential house or FIRE fund.

    Fast forward to now. PSLF happened. We paid my SO’s loans down to ~70k, where they currently sit interest free with plans to refinance to lower rates this January. Current income is ~500k, although it will at least temporarily dip to ~400k when a kid comes in the next year. Our assets are as follows:

    Roth: 170k
    Taxable: 700k (80% VTSAX and VTIAX, 20% VTIUX)
    401k: 530k
    457b (non gov): 155k
    HSA: 40k
    Cash: 100k

    We’ve been renting a small condo (2.6k/mo) with the idea that in doing so we’d save money for a nice future house after PSLF. Now that we are house hunting, I don’t know if that was the right choice. The local market has been brutal and seems to be getting worse. Houses have more than doubled since I started working. Over the past year we’ve been getting outbid again and again. It’s often by 100-200k “all cash” offers greater than our 100-200k over asking bid (contingencies removed of course). A 2k sq ft 3/2 house without obvious issues in a good school district is now about 1.4-1.5 million (frequently listed for $1-1.2 million).

    We plan on putting 10-15% down, liquidating the VTIUX and using cash for a downpayment. This would put the mortgage at 3-4x income. Servicing the mortgage after that seems daunting with PITI reaching 6-7.5k. And then there are repairs, etc.

    I do enjoy my job now but see forces in place that could affect that. Some are our desires for FIRE, and some from being an employee at a large hospital organization that doesn’t have my best interests in mind. And there are other locations, some lower COL, where we can easily be just as happy, although the job quality may not be the same.

    Our options seem to be 1 – suck it up, put a big bid in and pay the hefty downpayment and mortgage. 2 – rent a comparable house for 4.5-6k/month and forget about house.

    One advantage to option 2 is that it gives us some flexibility in switching houses or locations as needed. But then there are landlord issues. Some owners move back into or sell their rental. Quality rentals and landlords are still hard to find.

    I don’t know if there is an obvious solution. Everyone has different values. But I wanted to get some opinions on how to frame our housing decision and see how others who may be in similar situations handle this.

    Edited - miscalculated 401k, fixed.
    Last edited by bonehead; 10-05-2021, 09:15 AM.

  • #2
    I’m not in your situation but I will say that buying a house isn’t always something you have to do.

    Comment


    • #3
      I think your last statement is the most important, that you realize there is not an obvious solution to your problem.

      I am not in your situation and I have not been in a similar situation in the past, though , financially your best solution is to keep living where your are. Life happiness for you and your spouse may be more important than money with a new house, but it doesn't look like you are in a position to have both, FI and the house you desire. I would wait a little longer and settle your debts first.

      Comment


      • #4
        I'll echo what the others said. Do you HAVE to buy a house right now? If not, I would personally wait. While I would love to take advantage of the market right now to sell our house, I have no desire to try to buy/rent. It seems like your situation right now is doable (unless I'm missing something from your story). If you can delay buying/moving right now, you can really focus on paying down debt. That will give you a lot more flexibility in the long run to buy something you desire, without having to pay more than you should. If you get lucky, the housing market could tank, and then you could even get a great deal.

        If it were me and I had the option, I would stay put and wait it out a little longer.

        Comment


        • #5
          what good is paying down the debt going to do? It's interest free, and +/-70K isn't going to move the needle substantially when a lender looks at debt to income. probably not a solution to this situation.

          Comment


          • #6
            Originally posted by CordMcNally View Post
            I’m not in your situation but I will say that buying a house isn’t always something you have to do.
            Particularly if you're not head-over heels in love with your job and/or location.

            Comment


            • #7
              You are not going to like this, apologies in advance. One of the penalties of living in a VHCOL place.

              You have not been saving 20% for retirement it appears. I suggest you do that calculation for the whole six years on contributions at 20%. Figure out how much you owe yourself in retirement funding. You really need to pay yourself back at least the contributions. Congrats on getting the loans knocked out. You and your spouse need to pay yourself first. Part of your taxable and retirement accounts need to have the gains left in the retirement bucket.
              Balance due bonehead.

              Next figure out how much you can afford going forward. Gross-taxes-retire (20%)-housing (20%) = spending
              The bottom line is when you run the numbers you have $100k available for housing (total including maintenance).
              The PSLF helps because that SHOULD be allocated to the retirement to minimize the hit for the retirement savings.

              Now I will refrain from a recommendation. Any short fall on the housing down payment I would consider as a cost of VHCOL. I would not dip into the cash, that is an Efund.Trim it as you wish. Once you decide to take on the the mortgage, it will only get harder.

              You already know the above, it looks like you are not quite there yet. The contingency fund saved your a$$. Great choice. Make wise choices for the future. My guess is you know you are almost there, not quite. That is the whisper in your ear. Run the numbers and realize the disappoint is the assumption that the contingency fund would all go to the house down payment. This is not a criticism, just another way of viewing it for the long term. Keeping the housing where it is at until you pay yourself and accumulate the down payment is only answer long term. No contingency and no student loans combined with staying where you are at will solve the problem, just a year or two later. Small price to pay for financial security long term. You "know" the right answer, it is just whether you want to do it. The past is over, focus on the future.
              The price you pay for VHCOL. Unless you want to change that,you know the answer.

              Comment


              • #8
                Thanks for the input thus far. Tough love is great and, I think, helpful to get appropriate perspective.

                Some more relevant info - our current rental works for us, now. In fact, we really like it with the nearby restaurants and proximity to work. Things will get tight when the kid shows up. We already don't have space for the future grandparents to stay. We would need to do a lot of rearranging and put more into a storage unit. Overall we can certainly stay put and we've been doing that. It just will require more moving pieces soon.

                The taxable/contingency fund has been thought of as a combo retirement and housing fund. We've been saving >20% of our income easily, but our income hasn't been as high as it currently is when starting out.

                Agree, when one chooses to live in a VHCOLA, they need to understand the tradeoffs. What is frustrating is that we didn't live in a VHCOLA until the last few years when it moved to us. Nothing to do about that, it just is.
                Last edited by bonehead; 10-04-2021, 02:21 PM.

                Comment


                • #9
                  If you are happy there then for goodness sake don't move. Grandparents can be repeat customers of a neighbor airBNB.

                  Comment


                  • #10
                    It's a shame that being responsible and paying down low-interest student loans could mean you were priced out of the homes you wanted in just a few years. Like mentioned in another thread, at a certain point maybe the default advice doesn't work in these highly appreciating HCOL areas. People say it can't be sustained but maybe its like the stock market and will only go up...

                    Comment


                    • #11
                      Originally posted by Turf Doc View Post
                      People say it can't be sustained but maybe its like the stock market and will only go up...
                      Housing in a few particular areas are probably like a few stocks that some people probably just shouldn’t mess with. That said, it’s a shame that even relatively high income people can be priced out of certain areas. One would think there would be a reversion to the mean at some point but we all have seen how things can continue an upward trajectory longer than we thought possible. I wouldn’t feel comfortable putting a significant part of my income into a primary residence and hope for appreciation to fill the void of the other retirement savings that were missed out on.

                      Comment


                      • #12
                        No easy answers except to say that I’m in a similar situation. I can say that I think the housing market will cool off at least to the point that a 10% down physician loan or other non ideal “all cash no contingency” offer would be competitive.

                        In the meantime I recommend staying in your current place and saving. Your young child can absolutely live in a smaller apartment when very young. I take care of families with parents and 3-4 kids in a one bedroom apartment so it certainly is possible. Wait for a downturn or at least slow down in the market. Maybe you will be lucky and get a good correction in housing prices too though most experts aren’t that optimistic.

                        My goal is the reassess the market in 1-2 years and hope for the best.
                        Last edited by Hoopoe; 10-06-2021, 01:41 PM.

                        Comment


                        • #13
                          I agree with waiting a bit .

                          Our housing market is not as bad as yours , but still houses are 100-200K above early 2020 prices.

                          they are going 20-30 k above listing

                          We have practically given up for next 1-2 years ( had a house in contract , but gave up when owners refused disclosure)

                          we will keep on looking passively till we find something reasonable . Big difference is we own a smaller house currently .

                          it is unfortunate for buyers , but great for sellers .
                          fear is that prices will keep on going up . I thought it was cooling a bit , but it was just an illusion . I’m the meantime , we have accumulated 200 K for downpayment with current home equity of about 380 K ( hope to net 340-350), our budget is upto 850. We also regret not buying earlier ( but it’s all hindsight)



                          Comment


                          • #14
                            Originally posted by bonehead View Post
                            Thanks for the input thus far. Tough love is great and, I think, helpful to get appropriate perspective.

                            Some more relevant info - our current rental works for us, now. In fact, we really like it with the nearby restaurants and proximity to work. Things will get tight when the kid shows up. We already don't have space for the future grandparents to stay. We would need to do a lot of rearranging and put more into a storage unit. Overall we can certainly stay put and we've been doing that. It just will require more moving pieces soon.

                            The taxable/contingency fund has been thought of as a combo retirement and housing fund. We've been saving >20% of our income easily, but our income hasn't been as high as it currently is when starting out.

                            Agree, when one chooses to live in a VHCOLA, they need to understand the tradeoffs. What is frustrating is that we didn't live in a VHCOLA until the last few years when it moved to us. Nothing to do about that, it just is.
                            Trust me, not having space for visitors is a blessing in disguise. If you have 2 bedrooms in your place, you'll be good to stay there a few more years. Babies don't actually need much besides clothes/diapers/food. Kids don't need a million toys.

                            I'd keep renting until you know for sure you want to stay and feel the sacrifice is worth it, or you move to a more reasonable location.

                            I hope you don't feel too bad, you're killing it overall.

                            Comment


                            • #15
                              Met with my realtor yesterday. I also live in a VHCOL with similar if not slightly higher prices. The real estate company predicts next year will 'cool' but that doesn't mean drop, it mean gains less quickly. Instead of 22% gains this last year gains are predicted anywhere from 5-15%. She thinks it'll be more than 5% because she continues to be crazy busy and doesn't see much slowing in demand.

                              The reality in VHCOL places is there are not enough homes for people with money to spend. Don't expect a drop, slow down yes, but prices won't drop, esp if you're in an area with techie Millennials. Tech signing bonuses often run in the mid hundreds of thousands and it's hard for new docs starting out to compete. I couldn't initially until I paid off all my student loan debts. Good luck!

                              Comment

                              Working...
                              X