The current economic downturn has been hard on people thinking about starting over.
Job losses have hit people over 40 particularly hard. Some of us have had to tap into savings because of extended unemployment. All of us have seen our retirement portfolios shrink to the point we can barely see them without our reading glasses. And let’s not even talk about the value of our homes.
Actually, I’d like to reconsider that. Maybe we should talk about the value of our homes.
For many of us, our homes represent our single most important investment. Year after year, we’ve sent in our monthly mortgage payments and paid those crazy property tax bills, comfortable in the knowledge that we were building equity and a nice little nest egg.
So much for real estate being the safest investment around
Reports indicate that 25-40% of home mortgages are "underwater", meaning that the homeowner owes more on their home than it is currently worth. Not a fun situation to be in.
But even people whose mortgages are not underwater suddenly feel trapped in their homes. Many people in their forties, fifties, and sixties, start to think about downsizing their homes. Not today.
Yes, some of us would like a house with smaller yard, or one in a warmer climate, with a one level floor plan, or a lower tax rate. But the housing market is tanking! We can’t move now. We will lose our shirts! Better just stay put for a while until the market recovers.
Are things really as bad as they seem?
Click the year you bought your home in the graph below and watch how prices in the 20 metro areas have changed since your purchase. (Sorry, but the chart only goes back to 1998.)
Timing is everything, and my timing is always wrong.
So, if you have played with the chart a bit, you’ve seen pretty clearly that if you bought your home in 2005 or 2006, things are pretty bad.
But if you have been in your home for more than six or seven years — and you managed to resist the temptation to take out a big second mortgage to finance some monster remodeling job — you probably aren’t doing as badly as you might have thought.
It may be galling to think about what you could have got for your house five years ago versus what you can get for it now. (Believe me, I sympathize. I had an offer on my house in the summer of 2005. We decided to stay put. Today that same offer would probably buy two houses in my neighborhood.)
But what would have happened if I had sold? We’d have bought something else at the very top of the market, and now I’d be one of those poor souls with an underwater mortgage. I would feel even more trapped than I do now.
Could have, would have, should have…
My point is this: don’t give too much power to the past. You can look back on any investment and find a time when you could have bought lower or sold higher. Let it go. If you must look backward, look all the way back — to what you paid for your home investment — not what you could have got for it five years ago.
Assess your situation as it is today. Think about what you want going forward. It only pays to look backward if there is something to learn. Don’t torment yourself over what might have been. Focus on what will be.
(And accept my condolences if you did buy in 2005.)
Ed note: The Case-Shiller indices are calculated using a repeat sales methodology, one of the most accurate ways to measure price changes for real estate. When a single family home is sold in any of the 20 metro areas Case-Shiller tracks, it goes into their data base. When that home is resold, months or years later, the new sale price is matched to its previous sale price, creating a “sale pair.” These sales pairs are analyzed, screened for unusual circumstances, and then aggregated to create the indices.