HCOL - Can I afford 1.75M House?

[cards67]

I live in a HCOL area, it would be a slight stretch for me personally but do-able. IMO, some are conservative here and it's not a dire situation. It's really unfortunate the recent run up in home prices. We bought pre-pandemic for $1.2M and now its showing $1.6M on redfin. I would've said no way to that back then but here we are and that's the prices. It's also really unfortunate as you followed the "rules" by waiting a few years into the job, waiting until kids and now this. Just like the 2x mortgage rule, I think the 20% savings isn't a hard rule. Save as much as you can when you can, but it's fine to cut back when needed. We HCOL folks may not FIRE as soon as some others, but you will get there eventually. $530k plus $80k/yr over 20yrs can still yield $3M+.

Btw, whats the college savings budget?

[Tim]

Two more children will really add some expenses. Private school will be impossible. You might not be able to fund 3 college educations. How accurately are you tracking your spending? You might can swing this but you will be money stressed and risk burning out.

You can swing this but at some point you will strongly wish you didn't.

[StarTrekDoc]

OP - you live in HCOL environment and probably know the local market and how the neighbors are compared to your relative income. If they match up with yours in rough approximation; you're in the right ballpark. The main issue is spend and funding for incidentals/unknowns along the way -- AND NOT RAIDING THE 20% savings rate to balance the ledger.

Most likely you'll be fine if you keep to the budget.

cards67 - yeah, our house we sold last year for $1.95M --market says 2.79M now - that's pretty much right with recent sales comp. It's a crazy crazy market.

[uksho]

I read this post with interest as it resonates with my condition. We also make close to your salary ( but no bonus like the OP) , we are older and have slightly more in retirement funds than you .

I posted recently in the forum

Long story short , I would have similar cash flow if I buy the house ( house cheaper than you but pvt school tuition adds up for us ). I Couldn’t do it .

But the problem with the crazy market is that you just can’t find anything reasonably priced . I am hoping the market would calm down , but my gut feeling says that it will not drop much

So, now we have to decide if we want to buy the house and compromise on other things and live with some stress , or not buy the house and live with the regret of not living a decent life ( I know! )
we have lots of regrets about not buying some houses we saw in 2020/21.

I think the most important thing is how your partner/spouse feels about it .

I personally think if you get the bonus consistently , it is doable . Let us know what you decide.

[PedsCCM]

I think the most important thing is how your partner/spouse feels about it .

I personally think if you get the bonus consistently , it is doable . Let us know what you decide.

Surely this is most important in this discussion. You’re probably ok but things will be tighter than they would otherwise be if you don’t buy the house. Are y’all on the same page with limiting vacations, buying less nice cars, possibly paying for less of your kids’ education and prioritizing retirement saving above these other niceties? Relatively house poor can be fine if you’re fairly frugal otherwise.

I also agree with the posts above that you need a really good estimate of total costs associated with the house. Insurance, routine repairs, furniture, landscaping, HOA all add up quickly. Budgeting 4-5% of the house cost for repairs is probably close to correct ime. Good luck and let us know what you decide

[White.Beard.Doc]

Maybe I am getting to be an old curmudgeon.

Are any of you concerned about recent crazy inflation rates? This level of inflation is very bad for physicians. Health insurance reimbursements don’t go up with inflation. Physician incomes likely won’t keep pace with high levels of inflation.

Even if the numbers work in a somewhat tight fashion today, how would those numbers look in 5 years if inflation remains very high and the income doesn’t keep up?

[Larry Ragman]

Maybe I am getting to be an old curmudgeon.

Are any of you concerned about recent crazy inflation rates? This level of inflation is very bad for physicians. Health insurance reimbursements don’t go up with inflation. Physician incomes likely won’t keep pace with high levels of inflation.

Even if the numbers work in a somewhat tight fashion today, how would those numbers look in 5 years if inflation remains very high and the income doesn’t keep up?

Nah. That’s just recency bias. I don’t know when the high rate of inflation breaks, but regardless I doubt it will go on long enough to have those sorts of structural effects.

[Hatton]

Maybe I am getting to be an old curmudgeon.

Are any of you concerned about recent crazy inflation rates? This level of inflation is very bad for physicians. Health insurance reimbursements don’t go up with inflation. Physician incomes likely won’t keep pace with high levels of inflation.

Even if the numbers work in a somewhat tight fashion today, how would those numbers look in 5 years if inflation remains very high and the income doesn’t keep up?

It is very hard to know how long this crazy inflation lasts. Physician income will not keep up and neither will investment income. I just read a WSJ article quoting Bengen the SWR 4% guy who is revising it down. Stay tuned.

[jacoavlu]

Maybe I am getting to be an old curmudgeon.

Are any of you concerned about recent crazy inflation rates? This level of inflation is very bad for physicians. Health insurance reimbursements don’t go up with inflation. Physician incomes likely won’t keep pace with high levels of inflation.

Even if the numbers work in a somewhat tight fashion today, how would those numbers look in 5 years if inflation remains very high and the income doesn’t keep up?

how about the effect that inflation has on the value of all that real estate that you own?

[Dont_know_mind]

Maybe I am getting to be an old curmudgeon.

Are any of you concerned about recent crazy inflation rates? This level of inflation is very bad for physicians. Health insurance reimbursements don’t go up with inflation. Physician incomes likely won’t keep pace with high levels of inflation.

Even if the numbers work in a somewhat tight fashion today, how would those numbers look in 5 years if inflation remains very high and the income doesn’t keep up?

I understand this perspective I think.
It really depends on whether there is wage inflation. If there is not there will be a recession.

I fall on the other side from you on this. I think there will be real wages growth going forward to compensate for the last few years of negative real wage growth. I do not think there will be a recession in the next 2 years.

If there is ongoing moderate inflation, then a 30 year mortgage may be a great inflation hedge and has great convexity to high interest rates.
Real estate has usually kept up in moderate and high inflation environments. So barring a recession, it may work out well as an investment even from here, if there is ongoing inflation.

However, the OP is not looking at it in terms of as a RE investor. The OP is short a house. He is getting squeezed.

It's a market timing dillemma: does he remain short an asset with a long term expected return due to myopic risk aversion (fear of a bear market) ? Maybe he will get lucky, but it is not a risk I would take.

I think there are ways to resolve this. The 20% in retirement can be sacrificed for a few years if need be. It's a luxury.
The most likely resolution to this is I have seen in real life is the buyer gets priced out and ends buying somewhere less ideal a further 15-30 minutes away.
it is not the end of the world, but possibly putting 10% in retirement for a few years would be less painful.

[Dont_know_mind]

It is very hard to know how long this crazy inflation lasts. Physician income will not keep up and neither will investment income. I just read a WSJ article quoting Bengen the SWR 4% guy who is revising it down. Stay tuned.

I think the pendulum often swings form 1 extreme to another.
I would guess confidence in the 60:40, US only portfolio reached a peak last year.
It would not surprise me to see confidence in it being tested and people abandoning it at the other end of the pendulum.

I think it was always wishful thinking that a US only 60:40 portfolio would have much inflation protection, particularly with the amount of tech there.

From what I can discern (but I could be wrong), the only things that kept up with moderate and high inflation were commodities and to a lesser degree real estate.

Bonds and tech very poorly, so yes, people should probably budget on being able to survive a lower SWR if they have few inflation hedges and inflation turns up.

[Dont_know_mind]

Need a sanity check. Here's the rundown - it's not ideal, but hopefully it's not completely crazy. Breaking the 2x rule to about 3x or so.

Help and guidance is much appreciated!!

It's a very difficult situation. I would not buy a house as a real estate investor in the current market. It may well decline as WB mentions.
However, I would also not be short a house to live in either (based on previous bad experience).

Make sure you speak to your spouse about it.
On the 2X rule and 20% in retirement rules, I think they're great rules, but there are always exceptions to rules. Depends on the individuals.
Good luck with it!

[Tim]

Nah. That’s just recency bias. I don’t know when the high rate of inflation breaks, but regardless I doubt it will go on long enough to have those sorts of structural effects.

Sure it’s recency. However, much of the optimism for the last ten or so years was recency too.

Structural effects actually happen, right? Of course it could and will. The question is how severe and when.

[StarTrekDoc]

Maybe I am getting to be an old curmudgeon.

Are any of you concerned about recent crazy inflation rates? This level of inflation is very bad for physicians. Health insurance reimbursements don’t go up with inflation. Physician incomes likely won’t keep pace with high levels of inflation.

Even if the numbers work in a somewhat tight fashion today, how would those numbers look in 5 years if inflation remains very high and the income doesn’t keep up?

One could argue that is a point of buying, not renting as the single largest cost overall and cost containment with buying is better achieved than renting.

[bovie]

It is very hard to know how long this crazy inflation lasts. Physician income will not keep up and neither will investment income. I just read a WSJ article quoting Bengen the SWR 4% guy who is revising it down. Stay tuned.

This seems ridiculous and very short-sighted.

That SWR was developed over many different time periods and market and economic environments, several of which contained very high inflation and conditions decidedly worse than we have currently.

Sounds like a headline grab to me, nothing more.