I like your post, but your thinking was a bit simplistic and somewhat faulty on a few levels. I’m going to be somewhat tactical (robotic) in my responses for the sake of responding to your thoughtful feedback:
1) I don’t buy into the concept that if you don’t own you are a loser. I rent now and just prefer to own. I like the stability that comes with it and feeling like I can bond with like-minded neighbors. Living in a rental home in La Jolla puts you in a similar camp. Given how much you are paying for rent, you are the exception and not the norm.
2)After our downpayment we will have about $100-120K left over. The home we are buying is down about 20% from the height of the market.
3) Your reference to $500K in 401K only funding a few years of retirement is where you logic becomes fuzzy. I have been in the corporate workforce for 6 years (since 29) and have built up substantial income in bank and 401K — my earning power is increasing and I earn an additional $2K-4K per month (depending on month) doing consulting. But for the sake of your argument, let’s assume I suddenly stopped saving in my 401K and savings.
Let’s go with a 30-year scenario which is good in terms of housing and retirement scenarios given my age.
Just sitting on the 401K (not adding) in 30 years @ a modest 5% interest rate would give me about $2.2 million ($2.6 million if I add just $5,000 a year). A far cry from the 500K today.
The 100K in the bank @5% interest and saving a modest $100 per month on top of it (let’s assume some stocks and some conservative CD buying with this money) would result in $530K in 30 years.
So now I am at about $2.72 to $3.1 million in cash assets — which I will be able to access because I will be “of age”.
3) I get sick of people using this thing about what houses were worth 10-12 years ago. What about inflation? For the sake of your argument let’s go there. let’s take a $1 million dollar home in today’s market. Assuming it was $350K in 1995 it would be worth about $500K today (given a 3% compounded interest rate for inflation).
Let’s say I buy this $1 million dollar home today and it depreciates say by 1/3 over the next 5 years and then appreciates by normal inflation rates (3-4%). At the end of that 30 year period, the home would still be worth $1.4 million. I would not count that toward my liquidity but the home is paid for and I am sitting on a very hefty profit. I’m failing to see your logic.
4) True homes are not like the stock market in many regards, but they are similar in one way — you only lose if you sell when your equity is negative. The rest is just a paper loss. It’s amazing to me that many here criticize flippers, but your mentality about owning is very similar. Not everyone is in it for a quick dollar!
5) No, I am not buying in Carmel Valley or 4S ranch.
