How much of your total worth should be in your home? Is it wise to sell & invest the money or hold the house? 50% of my worth is in my house. I guess I'm wondering if housing prices will fall or continue to go up.

invest02 asks,

How much of your total worth should be in your home? Is it wise to sell & invest the money or hold the house? 50% of my worth is in my house. I guess I'm wondering if housing prices will fall or continue to go up.


There's an article in the October 2004 issue of Money magazine that advises downsizing to a less expensive home if your home represents more than 20% of your net worth.

intercst

"There's an article in the October 2004 issue of Money magazine that advises downsizing to a less expensive home if your home represents more than 20% of your net worth.

Hi intercst,

That wouldn't be practical for a whole lot of us who live in Northern California unless we sell and move ;-) And at 1000sqft, 2B1B I can't find too many places any smaller... two houses recently sold on my street, first one closed for $540K and the second is waiting to close for $569K, both same size but admittedly in better condition than mine..It's a bit mind boggling at times.

Regards, Ken

Hi invest02,

How much of your total worth should be in your home?

You need a place to live. You will pay for that place to live, regardless of whether you own or rent. If you have a mortgage, you're paying the servicing costs on the mortgage. If you own the house free and clear, you're tying up cash that could otherwise be generating you income in the house. If you rent, you're paying the landlord's mortgage.

No matter what your situation, you're paying for your place to live, either via forgone income or directly via rent or interest payments.

So my answer to your question is "enough so that you're comfortable in your surroundings, but not so much that you are required to sacrifice your lifestyle and long term security on the alter of your dwelling."

Is it wise to sell & invest the money or hold the house?
There's something to be said for owning a house free and clear. If I owned my house free and clear, my monthly housing expenses would drop by about 2/3rds. I believe that over the long run, however, I will likely end up better off financially by keeping the mortgage and investing, rather than pre-paying the mortgage and retiring the debt sooner.

That being said, owning a house is a lifestyle unto itself. In addition to the mortgage and utilities payments, there's yardwork, inside maintenance, cleaning, appliance repair and replacement... All of which take some measure of both money and time. If I didn't own the house, they'd be someone else's problem. If I rented, the costs would be included in the rent, and the effort would be the landlord's.

It's a lifestyle question at least as much as a financial question, and only you can answer it for yourself.

I guess I'm wondering if housing prices will fall or continue to go up.
My crystal ball is on the fritz, sorry. Reports of a pending collapse in the housing market have been news for well over a year now, and you've seen how that has worked out. At the same time, house prices in relation to income is historically very high right now, and that might compress if long term interest rates start moving up.

Do you like the house? Do you like the neighborhood? Can you handle the upkeep? If you weren't living in that house, where would you live? In all seriousness, those questions are far more important to answer than what direction house prices will move in the near term.

Best of luck to you,
-Chuck

…Is it wise to sell & invest the money or hold the house? …
The isn't enough information to begin to make a guess for you. A lot depends on what your other living options are.

…unless we sell and move ;-) …1000sqft, 2B1B I can't find too many places any smaller... two houses recently sold on my street, first one closed for $540K and the second is waiting to close for $569K …

LOL

There are nice places in the Midwest and the South and probably other regions, where you could buy a house that size for maybe $50K. (Yes there are some nice places in these regions, like some collage towns I have seen.)

Greg

There are nice places in the Midwest and the South and probably other regions, where you could buy a house that size for maybe $50K. (Yes there are some nice places in these regions, like some collage towns I have seen.)

Greg

But then you would be in the Midwest or South instead of the Best Coast.

I have the same problem, except I have a 3000 sf Victorian in L.A. I love the area, the weather, and the fact that it's not Somewere Else.

cliff

I bought a house in El Segundo in 1988 and had to sell it this year due to job loss. We were lucky that prices are booming! There were a number of years when we were badly "upside down", and would have been ruined if either my wife or I had lost our job. This is really the thing that you need to think of in a market that's as volatile as California's. If you're still young, in good health, and have a skill that's in high demand, I say hang on to your house. But, as you get older (I'm 52) it starts getting harder to find employment. You don't want to be forced to sell that expensive house in a big pull-back on prices.

Just something to think about.

Hedge

The Money magazine article is an example of over generalization. It might be true if you live in the certain areas of the US, but not in others. In the foothills behind Stanford on the SF peninsula, for example, few portfolios kept pace with appreciation of property, so you would have needed to continually downsize your home to follow Money's guideline. My observation there is over a 40 year period, but I observed similar if not so steep appreciation in LA and Orange counties over the last 60 years. The same holds true in Santa Barbara, especially the most desirable areas. I am sure there are lots of other regions, mostly along our coasts, where property appreciation has out paced general portfolio values. Then, of course, there is the mid west and much of the south where property values seem to stagnate.

db