Buying a Home. If It Isn’t a “Hell Yes,” Maybe It’s a No?

Buying a home in places like the Bay Area, Seattle, or New York City is stressful. At the root of all of that stress is just how damn expensive these homes are. If you could buy a home for $200,000, and you’re making that much every year from your job, then we wouldn’t be having this conversation.

But when you’re saving up to buy a home that’s going to be at least $1M, well, then, that starts to feel a little stressful. As it should! $1M is a lot of freaking money! As is $700k. And $1.5M.

I’ve recently talked with two of my clients, both in the Bay Area, who have been saving aggressively over the last year or more. All their RSUs as they vest? Sell ‘em and put the money right into savings. A hefty chunk of their regular paychecks? Right into savings. Bonuses? Into savings. Point is…they’re saving a lot. And they’ve been saving a lot for over a year. Maybe even 2 years now.

With both clients, we’ve established how much of a home they could prudently buy both in terms of a down payment and then the ongoing monthly costs (not just principal and interest on the mortgage, but also property tax and homeowner’s insurance and the cost of simply maintaining the home).

These clients have enough cash to make a reasonable down payment, even on an expensive home. And their current incomes could reasonably cover the monthly housing cost. (I do so love the notion of “reasonable” when it comes to making financial decisions. “Right” and “wrong” often aren’t very helpful concepts.)

One client has even gone to a bunch of open houses and has a real estate agent.

And yet, and YET, neither client has even put in an offer.

So I find myself musing over this No Actual Buying Of A Home, despite a year or two of continuous financial preparation. And I’m beginning to think that maybe buying an expensive home is a good application of the decision-making tool “If it’s not a hell yes, it’s a no.”

If You’re Going to Lose the Flexibility In Your Life, That Home Had Better Be Worth It.

Maybe buying such an expensive home needs to be a “hell yes” because, if you buy it, you are committed. You just depleted your cash cushion by $200k, maybe even $500k. You’ve now got a $7000/mo housing cost that you can’t get out from under, as you could more easily if you were renting.

In short, you’ve just lost a lot of flexibility in your life.

Do you want to change careers?

Go back to school?

Change roles within the tech industry?

Take a sabbatical?

Take unpaid leave to take care of yourself or loved ones?

I’m not saying you can’t do those things. But they’re now a whole lot harder thanks to your high housing expense that you’ve got to pay, every month, somehow. That more rewarding job you have your eye on? It doesn’t pay enough. Want to go back to school or take a leave of absence? Where’s the money going to come from to pay the housing costs while you’re busy not earning an income?

And what about if you want to leave your home?

Want to move closer to family?

Want to move somewhere else where your quality of life will be better?

If you decide to move within the first few years of owning a home, you’re taking a Big Risk (see those capital letters?) that you’re going to lose money on the house when you sell. The most obvious reason is that the housing market could lose value. (And yes, housing prices in places like the Bay Area can totally fall! It’s not a guaranteed gain!)

And even if your home doesn’t lose value, but nor does it gain much, you can still lose money because selling a home is expensive. Typical agent commissions (buyer+seller) are 6%. This article says transaction costs can be 10-15% of the sale price. If you’re selling a $1M home, maybe you’ll pay $100,000 in transaction costs. Sure hope your house appreciated at least that much.

This is the raison d’être for the (admittedly mushy) rule of thumb that you should plan to stay in your home at least 7ish years. Because that gives the housing market, and more importantly your specific home value, an opportunity to recover before you sell, if it happens to crash after you buy. It’s the same basic idea behind not putting your money in the stock market unless you’re going to leave it there for a long time…the market crashes on occasion, and you want to give your assets a chance to recover their value before you need to sell them.

So, if you’re not at a point in your life where you can confidently say that you’re going to remain in this home for at least 7ish years, you probably shouldn’t buy.

I own a home. I like owning a home (especially because my husband takes care of most of the home-owning bullshit like hiring all the necessary people and cleaning up leaks in the basement and painting the garage). I’m pro-home-ownership. At the right time.

For me, the right time wasn’t until I was 39, having chosen Bellingham, WA to settle in with my two young children, with the conscious thought that “This is where we will raise our children. We plan to stay here for 20 years. And dear God, get me out of this minivan!” In the previous 5 years, we had moved cross-country twice, trying to find the right place to live. Thank goodness we hadn’t bought a home in San Francisco or Norfolk, VA, where we used to live. Then we likely would have been stuck there, instead of finding the right home for us in Bellingham.

I know my own experience biases me against owning a home at an earlier stage of life (not so much age, but stage of life). I try not to impose my journey on you, but if you’re thinking of buying a home, especially an expensive one, please do ask yourself:

Is owning a home worth losing that much flexibility in my life? Or is my life still too much in flux?