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HCOL - Can I afford 1.75M House?

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  • #46
    If you can wait 6-12 months, chances are more likely than not, that there will be some decrease in house prices, given the 30-yr mortgage is at 5% right now, and may hit 6% by end of year. There should be downstream effects from that - the biggest one for new homebuyers being lower prices.

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    • #47
      Originally posted by Dont_know_mind View Post
      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…it is not the end of the world, but possibly putting 10% in retirement for a few years would be less painful.
      Slippery slope there…

      Human behavior 101 says that 10% will then become 5%, and then it may just “temporarily” disappear to cover that one expense, and then, and then…

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      • #48
        Originally posted by bovie View Post

        Slippery slope there…

        Human behavior 101 says that 10% will then become 5%, and then it may just “temporarily” disappear to cover that one expense, and then, and then…
        I think this behavioral risk is real for the people that are facing these hard choices. Retirement is in the future, I “need this now” is an emotional choice.

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        • #49
          Originally posted by Larry Ragman View Post

          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.
          The Ukraine war was a black swan event for inflation.
          The outlook for inflation is unknowable, it depends in my mind on whether the Ukraine war settles down or escalates.

          To me, war is to bonds what recession is to stocks. If you bought bonds within 2 years of the outbreak of a major war, in most cases, your bond position struggled due to the spike in inflation. Last month people were burnt returning to the heuristic of bonds for safety (it is safety for recessions and deflation, but maybe not war and inflation).

          The only analogous period to currently I can find is 1915-21.
          In 1914, pre-ww1, US inflation was 1%, in 1916, after ww1 started inflation was 7-8% (like it is today). US inflation in the subsequent 4 years was 14-17%. But then in 1921, inflation was -10%.

          However, the economy is much different to 1917 and who knows what will happen with the Ukraine war.

          Making a prediction about inflation here is maybe like guessing what will happen next when you're riding a rollercoaster with your eyes closed (and naked if you have much bonds and no inflation hedges).

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          • #50
            Originally posted by bovie View Post

            Slippery slope there…

            Human behavior 101 says that 10% will then become 5%, and then it may just “temporarily” disappear to cover that one expense, and then, and then…
            It depends on whether you are a saver. if you are, likely you will make the 20% into retirement and sacrifice lifestyle if you have to.
            It could be a slippery slope though.
            I would say do it, but actually I am not sure if I could if I was in the OP's shoes.
            It's a tough problem for savers and high inflation punishes prudent savers.

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            • #51
              Originally posted by bovie View Post

              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.
              I read the article because Bengen was quoted in it. A few years ago he recommended increasing the SWR to 4.7% and now is recommending 4.3%. His personal portfolio is mostly cash. He is essentially timing the market before getting back in. I thought it was interesting.

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              • #52
                Originally posted by Dont_know_mind View Post

                The Ukraine war was a black swan event for inflation.
                The outlook for inflation is unknowable, it depends in my mind on whether the Ukraine war settles down or escalates.

                To me, war is to bonds what recession is to stocks. If you bought bonds within 2 years of the outbreak of a major war, in most cases, your bond position struggled due to the spike in inflation. Last month people were burnt returning to the heuristic of bonds for safety (it is safety for recessions and deflation, but maybe not war and inflation).

                The only analogous period to currently I can find is 1915-21.
                In 1914, pre-ww1, US inflation was 1%, in 1916, after ww1 started inflation was 7-8% (like it is today). US inflation in the subsequent 4 years was 14-17%. But then in 1921, inflation was -10%.

                However, the economy is much different to 1917 and who knows what will happen with the Ukraine war.

                Making a prediction about inflation here is maybe like guessing what will happen next when you're riding a rollercoaster with your eyes closed (and naked if you have much bonds and no inflation hedges).
                Yeah, the Ukraine war is disruptive, but for perspective Europe was ~25% of world GDP in 1915 and 12% now. I suspect inflation shakes out as the COVID money dries up and the pandemic impediments to commerce are returned to normal. As I said, not sure how long that takes, certainly a few years. But to the original point I really don't see significant adverse effects on the financial well being of docs over that period. Then again, you know what they say about opinions

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                • #53
                  Originally posted by Dont_know_mind View Post
                  The Ukraine war was a black swan event for inflation.
                  It was not a black swan event, for inflation or otherwise.

                  Unexpected, sure. But war is not a black swan event. Quite the opposite.

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                  • #54
                    I would feel like I was focusing too much of my hard earned money on only 1 aspect of my life. I believe that the home is a good place to concentrate your spending because you get good use out of it but this seems a little too far. What you want now is going to be different as time goes on and you do not want to give up too much flexibility.

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                    • #55
                      Can you break down the monthly expenses? I live in I would say medium cost of living city also have one child spouse works and with a full-time nanny we spend much less per month.

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                      • #56
                        Originally posted by Larry Ragman View Post

                        Yeah, the Ukraine war is disruptive, but for perspective Europe was ~25% of world GDP in 1915 and 12% now. I suspect inflation shakes out as the COVID money dries up and the pandemic impediments to commerce are returned to normal. As I said, not sure how long that takes, certainly a few years. But to the original point I really don't see significant adverse effects on the financial well being of docs over that period. Then again, you know what they say about opinions
                        Great point Larry.
                        I have no idea. Everyone thinks that inflation will settle down, including me.
                        But there could be some unforeseen event.
                        Like if trade relations with China take a turn for the worse.
                        One that I could imagine is some of manufacturing having to be onshored and moved to to ensure supply.
                        Hard to imagine much of manufacturing from China moving to elsewhere, but I guess the show will go on whatever happens.

                        Depends on how much this alliance of the autocrats is sticky. It does seem like China is sticking with Russia.
                        Awkward for Germany to get their petrochemicals from Russia still and the US dependency on manufacturing from China.
                        Maybe it will just all blow over

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                        • #57
                          Originally posted by StarTrekDoc View Post

                          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.
                          Yes, an inflationary environment is a great time to own leveraged real estate, no question about it. A 10% increase in market value equals a 50% return with a 20% down payment. But that real estate should be reasonably affordable. You want to be able to meet your mortgage payments in times both good and bad.

                          In the OP’s situation, I would aim to purchase a house in a more affordable price range so those mortgage payments can be managed even if things don’t go exactly to plan. A bit of a financial cushion is more comfortable for me.

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                          • #58
                            Originally posted by xraygoggles View Post
                            If you can wait 6-12 months, chances are more likely than not, that there will be some decrease in house prices, given the 30-yr mortgage is at 5% right now, and may hit 6% by end of year. There should be downstream effects from that - the biggest one for new homebuyers being lower prices.
                            This will be interesting to watch! You might be right!

                            I remember 6% interest rates but this was in the early 2000s.

                            Seems like that all important monthly payment (which is the only thing many people seem to look at) might double 3% to 6%.

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                            • #59
                              Originally posted by Tangler View Post

                              This will be interesting to watch! You might be right!

                              I remember 6% interest rates but this was in the early 2000s.

                              Seems like that all important monthly payment (which is the only thing many people seem to look at) might double 3% to 6%.

                              Yes that's pretty much it. Definitely feeling the squeeze from this rise in rates, however if you don't get into something now, even with saving almost all my take home between now and whenever we do end up buying if it's in the 6-12 month time period, we'd really be no better off and possibly even worse off with rates in the 6s. Really kicking ourselves for not being more aggressive back in the fall. When you're at your max budget, everyday the rates come up your max has to come down. Checking out some other neighborhoods at a slightly lower price-point.


                              To those asking about budget earlier, our monthly expenses over a 6 month period last year when I tracked more accurately, were about $8000. Notably this includes about $3500 in monthly rent.

                              Really appreciate all the help and feedback it has been tremendously helpful.

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                              • #60
                                This is really a minor aside, but don't forget to mentally tax that bonus at your marginal rate and deduct 20% for retirement savings from that, too. All of a sudden $60k might not sound like so much on a monthly basis.

                                Would be curious to hear what you end up deciding. I think the number of responses to this thread speaks to the degree to which others can empathize with your situation.

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