It’s a tricky question because we are more vulnerable now with respect to job and wage instability than any time in most of our lifetimes.
When buying a house today, you should seriously consider the **strong** possibility of lay-offs and wage/benefit reductions, even in “safe” government jobs that are now seeing many layoffs and wage/benefit reductions (much more to come, BTW).
If you don’t have a cushion to provide for at least one year of un/under-employment, there’s a strong possibility you’ll have to sell or move out of the house.
Let’s not forget the additional savings required to build up all those trashed retirement funds. That should be separate from the one-year’s worth of “rainy day” savings.
If you put 20% down on a house (and most of us have to work long and hard to get that saved up), are you willing to lose 100% of your down payment? It’s easy to say, “I don’t care if it goes down another 15-20%,” but is that really the truth, if your back was against the wall?
So many people were devastated by 30-50% losses in their portfolios, but claim to have no problem with 100% losses on a house. Remember that the various selling and closing costs alone will wipe out 5-10% of your equity from day one.
Personally, I don’t want to lose a single cent on a purchase, but if an “acceptable loss” had to be quantified, the total losses would have to be no more than equivalent rent for the same type of house and duration of occupancy.
