Defining "House Poor"

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athan
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Re: Defining "House Poor"

Post by athan » Fri Feb 23, 2018 4:49 pm

Simple Simon wrote:
Fri Feb 23, 2018 4:34 pm
Someone is house poor if they own less than one house. :happy
Nice :D

UpperNwGuy
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Re: Defining "House Poor"

Post by UpperNwGuy » Fri Feb 23, 2018 4:56 pm

I'm amused by all these descriptions of the term house poor. In the 1970s, when I was in the early stages of my career, I had a number of friends and colleagues who were house poor in the sense that they could not afford to buy furniture for their new house because their new double-digit mortgage took up the lion's share of their household budget. I remember visiting beautiful houses where dinner was served on card tables and folding chairs because the family couldn't afford a dining room set. I remember living rooms furnished with bean bag chairs because the family couldn't afford proper living room furniture. I remember books lined up on the floor against the walls to save on bookcases, and mattresses on the floor for the lack of money to buy bed frames. These were objective symptoms of being house poor. And I'm sure that other aspects of their family budget suffered as well.
Last edited by UpperNwGuy on Fri Feb 23, 2018 4:57 pm, edited 1 time in total.

FoolMeOnce
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Re: Defining "House Poor"

Post by FoolMeOnce » Fri Feb 23, 2018 4:57 pm

KlangFool wrote:
Fri Feb 23, 2018 4:46 pm
FoolMeOnce wrote:
Fri Feb 23, 2018 4:40 pm
KlangFool wrote:
Fri Feb 23, 2018 4:36 pm
FoolMeOnce wrote:
Fri Feb 23, 2018 4:27 pm
KlangFool wrote:
Fri Feb 23, 2018 4:10 pm
OP,

If the house price is more than 40% of your net worth excluding your house, you are "House Poor".

KlangFool
So someone with a $3m house and $7m liquid investments is house poor? Or $30m and $70m? Odd definition.
FoolMeOnce,

Why? It makes perfect sense to me. The house's price is big enough that it affects the overall financial well being of the person.

<<So someone with a $3m house and $7m liquid investments is house poor? Or $30m and $70m?>>

In both cases, the house's price is large enough to matter. If the house is 1m with 7m liquid investment, the house does not matter at all. The house could worth $0 and it won't matter. It is too small in term of the overall portfolio.

KlangFool
It is hard for me to imagine someone with $70m liquid to have a house that affects their financial wellbeing. (On Earth)
FoolMeOnce,

Why? It is not hard. If the person buys a 100m house and owed 80m on the house, the person is in a seriously bad financial shape.

It does not matter how much that a person has. He/she could always spend enough on a house to get themselves into trouble.

KlangFool
Yes, that was a lack of imagination and clarity on my part. I was restricting myself to debt-free houses, as I assume those with 100m net worth would pay cash.

But it is easy to imagine a scenario where someone has a $30m house clear of debt, $70m liquid, low property taxes, and zero financial worries. Or a house that's amounts to even more of one's net worth. That's why I think definitions based on a fixed percentage of net worth or annual income are too imprecise, while at the same time offering the false confidence of precision.

What you wrote later makes more sense: "affects the overall financial well being of the person." This can't be determined by a fixed percentage that applies to every scenario. It depends on income, assets, expenses, living standards, etc.

LiterallyIronic
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Re: Defining "House Poor"

Post by LiterallyIronic » Fri Feb 23, 2018 4:58 pm

KlangFool wrote:
Fri Feb 23, 2018 4:10 pm
If the house price is more than 40% of your net worth excluding your house, you are "House Poor".

We have a choice: to be like everyone else or to be rich. I make my own decision and you make yours.
Looks like I'll be "house poor" most of my life. We bought a practically rock-bottom house in our area for $209,000. I'll have to have retirement funds of $522,500 to stop being "house poor." I intend to retire when I have $600,000. So I'll escape that definition of "house poor" by $77,500. And then immediately start drawing down my money with the goal being bouncing my last check.

When the price of a house is 14 years worth of expenses ($209,000 purchase price and living expenses (excluding taxes, mortgage, and investments) are $15,000, then you don't need much in retirement relative to the amount of home equity you need.

Sorry, but I define "rich" as so much less than you. Anybody with $100k+ in their retirement accounts is rich. I can 100% be "house poor" according to your definition and still consider myself rich (if I can ever get $100k in my retirement accounts). It's not one or the other.

fulltilt
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Re: Defining "House Poor"

Post by fulltilt » Fri Feb 23, 2018 5:01 pm

LiterallyIronic wrote:
Fri Feb 23, 2018 4:58 pm
KlangFool wrote:
Fri Feb 23, 2018 4:10 pm
If the house price is more than 40% of your net worth excluding your house, you are "House Poor".

We have a choice: to be like everyone else or to be rich. I make my own decision and you make yours.
Looks like I'll be "house poor" most of my life. We bought a practically rock-bottom house in our area for $209,000. I'll have to have retirement funds of $522,500 to stop being "house poor." I intend to retire when I have $600,000. So I'll escape that definition of "house poor" by $77,500. And then immediately start drawing down my money with the goal being bouncing my last check.

When the price of a house is 14 years worth of expenses ($209,000 purchase price and living expenses (excluding taxes, mortgage, and investments) are $15,000, then you don't need much in retirement relative to the amount of home equity you need.

Sorry, but I define "rich" as so much less than you. Anybody with $100k+ in their retirement accounts is rich. I can 100% be "house poor" according to your definition and still consider myself rich (if I can ever get $100k in my retirement accounts). It's not one or the other.
When you say retire, do you mean that you will cease to work for money?

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DaftInvestor
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Re: Defining "House Poor"

Post by DaftInvestor » Fri Feb 23, 2018 5:03 pm

Investopedia Definition for those that don't like to google these things:
House poor is a situation that describes a person who spends a large proportion of his or her total income on home ownership, including mortgage payments, property taxes, maintenance and utilities.
Of course many here focus more on how home-equity/price relates to NetWorth but I too, have always thought of someone as being house-poor as someone who simply can't easily support their home with their income (e.g. never being able to eat out, vacation, etc. because most of their income is spent simply on their home expenses).
When I hear someone say "We can't ever afford to go out to eat - we have a mortgage now" - I think of them as house poor.
Someone with a NetWorth of $5M with $3M in equity in their home - with a salary of $500K a year - not house poor in my mind.

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ray.james
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Re: Defining "House Poor"

Post by ray.james » Fri Feb 23, 2018 5:04 pm

My definition of house poor
1) When the total housing budget encroaches/cuts into needs/basic wants budget(Wants to a large extent is okay in my view)
2)During retired/house paid off phase, a substantial net worth locked in house that prevents ones needs/basic wants to be cut down in $ to accomodate.

Bottom line: keeping off replacing a 10 year old car/ eating out/vacation is OK to buy a pricey house but not replacing a 15 year old car/high costs grocery items/entertainment.
When in doubt, http://www.bogleheads.org/forum/viewtopic.php?f=1&t=79939

LiterallyIronic
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Re: Defining "House Poor"

Post by LiterallyIronic » Fri Feb 23, 2018 5:06 pm

fulltilt wrote:
Fri Feb 23, 2018 5:01 pm
LiterallyIronic wrote:
Fri Feb 23, 2018 4:58 pm
KlangFool wrote:
Fri Feb 23, 2018 4:10 pm
If the house price is more than 40% of your net worth excluding your house, you are "House Poor".

We have a choice: to be like everyone else or to be rich. I make my own decision and you make yours.
Looks like I'll be "house poor" most of my life. We bought a practically rock-bottom house in our area for $209,000. I'll have to have retirement funds of $522,500 to stop being "house poor." I intend to retire when I have $600,000. So I'll escape that definition of "house poor" by $77,500. And then immediately start drawing down my money with the goal being bouncing my last check.

When the price of a house is 14 years worth of expenses ($209,000 purchase price and living expenses (excluding taxes, mortgage, and investments) are $15,000, then you don't need much in retirement relative to the amount of home equity you need.

Sorry, but I define "rich" as so much less than you. Anybody with $100k+ in their retirement accounts is rich. I can 100% be "house poor" according to your definition and still consider myself rich (if I can ever get $100k in my retirement accounts). It's not one or the other.
When you say retire, do you mean that you will cease to work for money?
I don't know any other definition of "retire" than that. Quit working. If you're employed even part-time or self-employed, that's not retired.

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BrandonBogle
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Re: Defining "House Poor"

Post by BrandonBogle » Fri Feb 23, 2018 5:06 pm

thangngo wrote:
Fri Feb 23, 2018 12:58 pm
House poor = you buy more house than you need. Plain and simple.
IMO that is too narrow of a view. My house was 2x my annual income when I bought it. That purchase price to today's income is 1.5x. After income taxes, medical insurance, 401k, etc. my mortgage is less than 15% of my monthly take-home pay. That said, its a 4-bedroom, 2.5-bathroom house in a great neighborhood with a 1100 sq ft. walk-out basement on a 1/3 of an acre. This is FAR more house than I need as a single person, but I would definitely not classify myself as house poor.

emoore
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Re: Defining "House Poor"

Post by emoore » Fri Feb 23, 2018 5:08 pm

Ha. It's always entertaining when Klangfool responds to a housing thread. That's just his opinion of what is house poor. You don't have to agree with him, or justify why you don't think you are house poor to him. He does a great job of getting people spun up with his personal housing restrictions. Just because he doesn't agree, doesn't mean you are going to be house poor.

My definition of house poor would be more than 30% of your take home going to housing. But that's just my opinion and doesn't really mean much to anyone else.

fulltilt
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Re: Defining "House Poor"

Post by fulltilt » Fri Feb 23, 2018 5:11 pm

LiterallyIronic wrote:
Fri Feb 23, 2018 5:06 pm
fulltilt wrote:
Fri Feb 23, 2018 5:01 pm
LiterallyIronic wrote:
Fri Feb 23, 2018 4:58 pm
KlangFool wrote:
Fri Feb 23, 2018 4:10 pm
If the house price is more than 40% of your net worth excluding your house, you are "House Poor".

We have a choice: to be like everyone else or to be rich. I make my own decision and you make yours.
Looks like I'll be "house poor" most of my life. We bought a practically rock-bottom house in our area for $209,000. I'll have to have retirement funds of $522,500 to stop being "house poor." I intend to retire when I have $600,000. So I'll escape that definition of "house poor" by $77,500. And then immediately start drawing down my money with the goal being bouncing my last check.

When the price of a house is 14 years worth of expenses ($209,000 purchase price and living expenses (excluding taxes, mortgage, and investments) are $15,000, then you don't need much in retirement relative to the amount of home equity you need.

Sorry, but I define "rich" as so much less than you. Anybody with $100k+ in their retirement accounts is rich. I can 100% be "house poor" according to your definition and still consider myself rich (if I can ever get $100k in my retirement accounts). It's not one or the other.
When you say retire, do you mean that you will cease to work for money?
I don't know any other definition of "retire" than that. Quit working. If you're employed even part-time or self-employed, that's not retired.
I tend to agree, but that doesn't seem to be the definition the cool kids (FIRE) use now which is why i was asking. If you can retire on $600k, then kudos to you. :beer

deltaneutral83
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Re: Defining "House Poor"

Post by deltaneutral83 » Fri Feb 23, 2018 5:18 pm

I assumed a good spot to be in meant 25-30% of your net take home and covers PITI, and shoot for purchase price to be 3x-3.5x your household income. When you're young it's going to be a huge piece of your net worth. There has to be a sliding scale on the age component and how much your home is of your TNW. For millionaires, I think the formula is less relevant as you have a lot of wiggle room if you own a $2M home and a $4M net worth.

ThriftyPhD
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Re: Defining "House Poor"

Post by ThriftyPhD » Fri Feb 23, 2018 5:21 pm

FoolMeOnce wrote:
Fri Feb 23, 2018 4:57 pm
KlangFool wrote:
Fri Feb 23, 2018 4:46 pm
FoolMeOnce wrote:
Fri Feb 23, 2018 4:40 pm
KlangFool wrote:
Fri Feb 23, 2018 4:36 pm
FoolMeOnce wrote:
Fri Feb 23, 2018 4:27 pm


So someone with a $3m house and $7m liquid investments is house poor? Or $30m and $70m? Odd definition.
FoolMeOnce,

Why? It makes perfect sense to me. The house's price is big enough that it affects the overall financial well being of the person.

<<So someone with a $3m house and $7m liquid investments is house poor? Or $30m and $70m?>>

In both cases, the house's price is large enough to matter. If the house is 1m with 7m liquid investment, the house does not matter at all. The house could worth $0 and it won't matter. It is too small in term of the overall portfolio.

KlangFool
It is hard for me to imagine someone with $70m liquid to have a house that affects their financial wellbeing. (On Earth)
FoolMeOnce,

Why? It is not hard. If the person buys a 100m house and owed 80m on the house, the person is in a seriously bad financial shape.

It does not matter how much that a person has. He/she could always spend enough on a house to get themselves into trouble.

KlangFool
Yes, that was a lack of imagination and clarity on my part. I was restricting myself to debt-free houses, as I assume those with 100m net worth would pay cash.

But it is easy to imagine a scenario where someone has a $30m house clear of debt, $70m liquid, low property taxes, and zero financial worries. Or a house that's amounts to even more of one's net worth. That's why I think definitions based on a fixed percentage of net worth or annual income are too imprecise, while at the same time offering the false confidence of precision.

What you wrote later makes more sense: "affects the overall financial well being of the person." This can't be determined by a fixed percentage that applies to every scenario. It depends on income, assets, expenses, living standards, etc.
Like all rules of thumb, they tend to break down at the extremes. A 90:10 stock:bond asset allocation might be extremely risky for most people about to retire. But if you're Mrs. Buffet and have a $100 million portfolio and expenses < $200k/year, a 90:10 S&P500:Treasuries is no risk at all.

It's also a bit hard to think about fiscal situations well outside of our own. Take your $30m free and clear, $70m liquid example. As someone who could retire on $2m liquid, I would find this situation no trouble at all. As you said, with that $70m alone I would have no financial worries.

But think about the typical person who would have that type of wealth. For your average american, spending tends to scale right along with available money. Lets assume the house has 2% property tax ($600k), insurance ($100k), and 1% maintenance ($300k). That's $1million per year that house costs. Let's assume a fair bit in long term cap gains (20%) and some in tax deferred (37%). Average it out at 28%, you would need about $1.4 million withdrawn just to maintain the home. That's a 2% withdrawal rate. If they are retired, that's half of their safe withdrawal going to the house. Now, you and I might think "well yeah, but they still have a cool $2 million to spend", but then you and I aren't the type of buy a $30m home in the first place. Would $2 million be enough for the lifestyle that someone with net worth $100m wants to live?

michaeljc70
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Re: Defining "House Poor"

Post by michaeljc70 » Fri Feb 23, 2018 5:23 pm

It is interesting that some people only equate it with income/payments. I think you can be house poor from an asset perspective too. If you have a net worth of 200k and it is all in your house, I would say you are house poor.

As to the actual levels, I think it is very subjective. From an income perspective, if you are struggling to save and/or pay other bills you are house poor. I wouldn't put an income % on it as expenses vary greatly from family to family.

FoolMeOnce
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Re: Defining "House Poor"

Post by FoolMeOnce » Fri Feb 23, 2018 5:48 pm

ThriftyPhD wrote:
Fri Feb 23, 2018 5:21 pm
FoolMeOnce wrote:
Fri Feb 23, 2018 4:57 pm
KlangFool wrote:
Fri Feb 23, 2018 4:46 pm
FoolMeOnce wrote:
Fri Feb 23, 2018 4:40 pm
KlangFool wrote:
Fri Feb 23, 2018 4:36 pm


FoolMeOnce,

Why? It makes perfect sense to me. The house's price is big enough that it affects the overall financial well being of the person.

<<So someone with a $3m house and $7m liquid investments is house poor? Or $30m and $70m?>>

In both cases, the house's price is large enough to matter. If the house is 1m with 7m liquid investment, the house does not matter at all. The house could worth $0 and it won't matter. It is too small in term of the overall portfolio.

KlangFool
It is hard for me to imagine someone with $70m liquid to have a house that affects their financial wellbeing. (On Earth)
FoolMeOnce,

Why? It is not hard. If the person buys a 100m house and owed 80m on the house, the person is in a seriously bad financial shape.

It does not matter how much that a person has. He/she could always spend enough on a house to get themselves into trouble.

KlangFool
Yes, that was a lack of imagination and clarity on my part. I was restricting myself to debt-free houses, as I assume those with 100m net worth would pay cash.

But it is easy to imagine a scenario where someone has a $30m house clear of debt, $70m liquid, low property taxes, and zero financial worries. Or a house that's amounts to even more of one's net worth. That's why I think definitions based on a fixed percentage of net worth or annual income are too imprecise, while at the same time offering the false confidence of precision.

What you wrote later makes more sense: "affects the overall financial well being of the person." This can't be determined by a fixed percentage that applies to every scenario. It depends on income, assets, expenses, living standards, etc.
Like all rules of thumb, they tend to break down at the extremes. A 90:10 stock:bond asset allocation might be extremely risky for most people about to retire. But if you're Mrs. Buffet and have a $100 million portfolio and expenses < $200k/year, a 90:10 S&P500:Treasuries is no risk at all.

It's also a bit hard to think about fiscal situations well outside of our own. Take your $30m free and clear, $70m liquid example. As someone who could retire on $2m liquid, I would find this situation no trouble at all. As you said, with that $70m alone I would have no financial worries.

But think about the typical person who would have that type of wealth. For your average american, spending tends to scale right along with available money. Lets assume the house has 2% property tax ($600k), insurance ($100k), and 1% maintenance ($300k). That's $1million per year that house costs. Let's assume a fair bit in long term cap gains (20%) and some in tax deferred (37%). Average it out at 28%, you would need about $1.4 million withdrawn just to maintain the home. That's a 2% withdrawal rate. If they are retired, that's half of their safe withdrawal going to the house. Now, you and I might think "well yeah, but they still have a cool $2 million to spend", but then you and I aren't the type of buy a $30m home in the first place. Would $2 million be enough for the lifestyle that someone with net worth $100m wants to live?
That's my point, though. Not being able to buy a new yacht every year is not house poor. It doesn't require this extreme of an example, but it makes the point that percentages are very crude. What matters is whether having too much net worth or cash flow tied to a house negatively affect one's life in a meaningful way. I don't think percentages give good guideposts, especially income-based ones that ignore other assets.

miamivice
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Re: Defining "House Poor"

Post by miamivice » Fri Feb 23, 2018 6:15 pm

We should keep in mind that there are strict lending guidelines as to how much loan you can get from a mortgage broker. Except in the case of job loss, retirement, or exit from the workplace (such as a dual income family migrating to a single income family), a mortgage payment would never cause someone to be "house poor" if they otherwise lived a normal budget. (Stated income loans and interest only loans were an exception to this rule - but they largely have gone away).

Generally no one has a home loan that takes 50% or 75% of pretax income or other obscene amount. Generally home loans are limited to around ~30% of pretax income and total debt can't exceed a threshold just above that (not sure exactly what that is).

So for all of the discussion about being house poor, I'd say that the guy who says he can't go out to eat because he has a mortgage is either trying to excuse himself from an activity he doesn't want to partake in, or he already spends the remaining part of his budget on other stuff. His placing the blame on not being able to go out to eat due to the mortgage isn't correct, as he has at least 70% of pretax dollars that are used for non-mortgage purposes.

KlangFool
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Re: Defining "House Poor"

Post by KlangFool » Fri Feb 23, 2018 6:25 pm

miamivice wrote:
Fri Feb 23, 2018 6:15 pm
We should keep in mind that there are strict lending guidelines as to how much loan you can get from a mortgage broker. Except in the case of job loss, retirement, or exit from the workplace (such as a dual income family migrating to a single income family), a mortgage payment would never cause someone to be "house poor" if they otherwise lived a normal budget. (Stated income loans and interest only loans were an exception to this rule - but they largely have gone away).
miamivice,

1) <<job loss, retirement, or exit from the workplace (such as a dual income family migrating to a single income family),>>

Those are normal occurrences.

2) <<they otherwise lived a normal budget.>>

Normal people keep up with Jones in their neighborhood and save nothing.

So, between (1) and (2), the house destroys many folks financially.

KlangFool

michaeljc70
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Re: Defining "House Poor"

Post by michaeljc70 » Fri Feb 23, 2018 6:40 pm

KlangFool wrote:
Fri Feb 23, 2018 6:25 pm
miamivice wrote:
Fri Feb 23, 2018 6:15 pm
We should keep in mind that there are strict lending guidelines as to how much loan you can get from a mortgage broker. Except in the case of job loss, retirement, or exit from the workplace (such as a dual income family migrating to a single income family), a mortgage payment would never cause someone to be "house poor" if they otherwise lived a normal budget. (Stated income loans and interest only loans were an exception to this rule - but they largely have gone away).
miamivice,

1) <<job loss, retirement, or exit from the workplace (such as a dual income family migrating to a single income family),>>

Those are normal occurrences.

2) <<they otherwise lived a normal budget.>>

Normal people keep up with Jones in their neighborhood and save nothing.

So, between (1) and (2), the house destroys many folks financially.

KlangFool
Many things can happen after closing on a mortgage. Expenses aren't fixed. People may have to spend more for healthcare, they may have a baby, the wife may decide to stop working, they might have to take care of a parent, they may have expensive car repairs, the property taxes might rise faster than wages. Just because you were approved for a mortgage 1,5 or 10 years ago doesn't mean a whole lot.

halfnine
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Re: Defining "House Poor"

Post by halfnine » Fri Feb 23, 2018 6:45 pm

I view being house poor as not having enough assets to make your mortgage payments for a few years if the economy tanks, markets crash, and you lose your job.

H-Town
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Re: Defining "House Poor"

Post by H-Town » Fri Feb 23, 2018 7:03 pm

BrandonBogle wrote:
Fri Feb 23, 2018 5:06 pm
thangngo wrote:
Fri Feb 23, 2018 12:58 pm
House poor = you buy more house than you need. Plain and simple.
IMO that is too narrow of a view. My house was 2x my annual income when I bought it. That purchase price to today's income is 1.5x. After income taxes, medical insurance, 401k, etc. my mortgage is less than 15% of my monthly take-home pay. That said, its a 4-bedroom, 2.5-bathroom house in a great neighborhood with a 1100 sq ft. walk-out basement on a 1/3 of an acre. This is FAR more house than I need as a single person, but I would definitely not classify myself as house poor.
You wouldn't but I would if I were you. Why do you need a 4 bedroom and 2.5 baths? You'll pay for all the expenses that come with a bigger house than you need. Those that would be saved and invested for your financial independence. If FI is not your goal, or least not as important as living in a big house, then I don't think house-poor term would mean anything to you. Try to think the term as a teaching tool to a young professional starting out and prevent them from making a bad decision in buying a house bigger than he or she needs.

Let's say FI = 50 x Annual Expenses.
Every time you increase your annual expense, your FI number would have increased 50 times over. :beer

randomguy
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Re: Defining "House Poor"

Post by randomguy » Fri Feb 23, 2018 7:16 pm

ncbill wrote:
Fri Feb 23, 2018 4:35 pm


Yeah, I always thought in income terms as well.

Currently trying to help an older relative (early 70s) who has been in their home ~40 years but still has a mortgage and HELOC (refinanced several times to make ends meet)

Right now they're spending ~50% of their income on mortgage/HELOC/insurance/taxes.

They're so strapped for cash that they even delayed signing up for Medicare Part B until this year (and will now pay a hefty lifetime penalty)

EDIT: +1 to "all hail Klangfool!"
Are they house poor or just poor?:). Would they be "richer" if they sold the house and rented?

Ollie123
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Re: Defining "House Poor"

Post by Ollie123 » Fri Feb 23, 2018 7:19 pm

My definition is pretty simple, albeit vague - spending so much on a house it is difficult to save and/or spend on other things. We are house poor by some people's definitions and doing great by others (early/mid 30's, mortgage ~1.5x annual salaries). We absolutely bought more than we need. We also bought less than we (ideally) want - at least in terms of location, style, etc. if not raw square footage. We are definitely those people who bought a year ago and haven't furnished beyond the basics. We've got 30k sitting in savings, have ~20% of our gross income going into 401ks not counting match, save on top of that and had a bunch of discretionary spending on other things this past year so we absolutely could have furnished the place more, but aren't in any big rush and wanted to get a feeling for expenses (and the home itself) first.

Frankly, I think this really is a very personal thing. Some here (e.g. Klangfool) are obviously incredibly conservative, others less so. Just like with asset allocation, I don't think there is a right or wrong answer. His approach is the housing equivalent of keeping 100% in the lowest risk options one can find. If that is what he needs to sleep well at night, good for him. Most of us (myself included) are willing to accept some level of risk (in this case referring to job loss, etc.) in exchange for enjoying the benefits of home ownership earlier in life. In theory, it could cause problems for us if the situation changed. Most likely, those would be short-lived and solvable (e.g.. short sale, downsize). The likelihood it would have catastrophic consequences is extremely small, so I'm OK with taking that risk. I'm not sure what else matters.

As with many things, the goal often seems to be to make the "perfect" decision. The reality is that one doesn't exist and even if it did, a "good" housing decision is going to be good enough the vast majority of the time.

Compound
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Re: Defining "House Poor"

Post by Compound » Fri Feb 23, 2018 7:39 pm

ThriftyPhD wrote:
Fri Feb 23, 2018 12:57 pm
There is no boglehead definition of house poor, just like there is no boglehead definition of 'best asset allocation'. In the end, it comes down to personal preference.

Example: Someone who is risk averse might say the best asset allocation is 30:70 stocks:bonds. Someone who is less risk averse might say 80:20. And you'll get everything from 0:100 to 100:0. You'll even have people using 3x margin and a 100:0 stock portfolio, though maybe not that common on bogleheads.

So going back to housing. There are a few aspects that apply here.

One is your cash flow. This is where Debt to Income (DTI) comes in. The bank will have a limit. Fannie Mae is 36%, but allows this to go higher (45-50%) depending on credit and assets. However, that's usually based on gross pay, so when you also subtract out taxes the money left over for you to actually spend is much lower. At this level almost all of your money would be going towards the house, with little left for savings, retirements, or budgeting for home repairs. This is one extreme of house poor, and one that I think most people would agree upon.

Keeping to cash flow, you'll see either smaller DTI values, or a suggestion to think in Net Income rather than Gross. 25% of Net income going towards PITI is one common recommendation as an upper level. This leaves you 75% of Net Income for savings and spending.

The other aspect is in terms of net worth. Lets say you're 55 and own your $600k home outright. You have $50k in an IRA, and otherwise no other retirement savings, and no debts. In this situation, the bulk of your net worth is tied up in your home. So even though little of your cash flow is going towards the home, the majority of your savings are tied up in the home, and so you could be considered house poor.

Like DTI, there is no agreed upon cutoff here. Most Americans have the bulk of their assets tied up in their homes, and therefore could be considered house poor even after the mortgage is paid off. But do you go with 50:50 House:Savings, or 25:75, or 10:90 as a cutoff? All comes down to your personal decisions. The greater the percentage of your assets tied up in a single property, the more risk you're taking in terms of valuation. Much like owning a single stock. And outside a reverse mortgage, you can't use the equity in the home to pay expenses. You could sell the home to move into a cheaper home, but you would incur 6-10% sales fees to do so, and might not be able to do so quickly. A house is, after all, a rather illiquid asset unless you're willing to sell for a sizable loss.

This is why both cash flow and equity is often considered when it comes to deciding if you are 'house poor'.
I enjoyed your post ThriftPhD, perhaps because I think largely along the same lines.

In my view, “house poor” is an ambiguous term with many possible contributing factors. Key factors to consider include cash flow, net worth, life status, other spending priorities, etc. For the life of me I can’t conceive of how one rule of thumb that some seem to espouse here (such as % of net worth, DTI ratios, etc.) applies to all people.

OP — I simply think that you need to consider how the key underlying elements that people are saying comprise their idea of “house poor” apply to your particular situation. Care to post more details to have people chime in?

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BrandonBogle
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Re: Defining "House Poor"

Post by BrandonBogle » Fri Feb 23, 2018 7:42 pm

thangngo wrote:
Fri Feb 23, 2018 7:03 pm
BrandonBogle wrote:
Fri Feb 23, 2018 5:06 pm
thangngo wrote:
Fri Feb 23, 2018 12:58 pm
House poor = you buy more house than you need. Plain and simple.
IMO that is too narrow of a view. My house was 2x my annual income when I bought it. That purchase price to today's income is 1.5x. After income taxes, medical insurance, 401k, etc. my mortgage is less than 15% of my monthly take-home pay. That said, its a 4-bedroom, 2.5-bathroom house in a great neighborhood with a 1100 sq ft. walk-out basement on a 1/3 of an acre. This is FAR more house than I need as a single person, but I would definitely not classify myself as house poor.
You wouldn't but I would if I were you. Why do you need a 4 bedroom and 2.5 baths? You'll pay for all the expenses that come with a bigger house than you need. Those that would be saved and invested for your financial independence. If FI is not your goal, or least not as important as living in a big house, then I don't think house-poor term would mean anything to you. Try to think the term as a teaching tool to a young professional starting out and prevent them from making a bad decision in buying a house bigger than he or she needs.

Let's say FI = 50 x Annual Expenses.
Every time you increase your annual expense, your FI number would have increased 50 times over. :beer
There was a time when it was more than just me. But I would have bought this house even without that as factor. My mortgage is less than the average rent in this area. Even factoring in repairs, property taxes, renovations, etc. I’m coming out ahead and when it grows to two or more people living here, there won’t be a fundamental change in the finances.

And while I’m not FI, I’m getting closer. Currently roughly at annual expenses x 25. But again, my rent in a high crime rate was almost the same cost and the rent in the nicer areas around me are more than what I pay.

LasixDrip
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Re: Defining "House Poor"

Post by LasixDrip » Fri Feb 23, 2018 8:40 pm

KlangFool wrote:
Fri Feb 23, 2018 4:10 pm
OP,

If the house price is more than 40% of your net worth excluding your house, you are "House Poor".

KlangFool
Couldn’t be happier to fit Klangfool’s definition of “Housepoor”. I’m blessed beyond belief, but Klangfool’s description of housepoor is the only way I could ever imagine myself “poor” in financial terms.

Keep on keepin on Klangfool. I started reading the thread, was waitin for it, and you didn’t disappoint.

raisinsaregrapes
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Re: Defining "House Poor"

Post by raisinsaregrapes » Fri Feb 23, 2018 8:59 pm

LasixDrip wrote:
Fri Feb 23, 2018 8:40 pm
KlangFool wrote:
Fri Feb 23, 2018 4:10 pm
OP,

If the house price is more than 40% of your net worth excluding your house, you are "House Poor".

KlangFool
Couldn’t be happier to fit Klangfool’s definition of “Housepoor”. I’m blessed beyond belief, but Klangfool’s description of housepoor is the only way I could ever imagine myself “poor” in financial terms.

Keep on keepin on Klangfool. I started reading the thread, was waitin for it, and you didn’t disappoint.
I think by this definition most everyone on earth below the age of 50 is house poor.

MathWizard
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Re: Defining "House Poor"

Post by MathWizard » Fri Feb 23, 2018 9:05 pm

miamivice wrote:
Fri Feb 23, 2018 12:54 pm
Go Blue 99 wrote:
Fri Feb 23, 2018 12:26 pm
I would consider you house poor if you find your mortgage payment prevents you from saving at a healthy clip, or prevents you from spending in other areas you want to (whether it be travel, eating out, etc).
This is where I struggle a lot with the term house poor.

Bogleheads is a financial forum with an eye intended to be focused on making financially good decisions.

If a mortgage payment, which is used to purchase an appreciating asset, limits the amount of spending one can do on travel and eating out, I don't think that is a bad thing from a financial standpoint.

There might be many reasons why one would prefer to spend money on whatever (travel, meals out, etc) but from a financial standpoint the money is generally better off flowing into a house than being spent on other things.
I don't consider a house as an appreciating asset. To me it is an asset, but constantly depreciating if I don't put about 2% of the house value into it every year plus property taxes and insurance.
I don't have to do that on my stocks and bonds.

Now I have to live somewhere, so I did buy a house, and it is paid off now, but it's my investments that I will live on.

madbrain
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Re: Defining "House Poor"

Post by madbrain » Fri Feb 23, 2018 9:22 pm

thangngo wrote:
Fri Feb 23, 2018 12:58 pm
House poor = you buy more house than you need. Plain and simple.
That would make some of the wealthiest people in the world, who own many houses, house poor.

finite_difference
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Re: Defining "House Poor"

Post by finite_difference » Fri Feb 23, 2018 9:22 pm

raisinsaregrapes wrote:
Fri Feb 23, 2018 8:59 pm
LasixDrip wrote:
Fri Feb 23, 2018 8:40 pm
KlangFool wrote:
Fri Feb 23, 2018 4:10 pm
OP,

If the house price is more than 40% of your net worth excluding your house, you are "House Poor".

KlangFool
Couldn’t be happier to fit Klangfool’s definition of “Housepoor”. I’m blessed beyond belief, but Klangfool’s description of housepoor is the only way I could ever imagine myself “poor” in financial terms.

Keep on keepin on Klangfool. I started reading the thread, was waitin for it, and you didn’t disappoint.
I think by this definition most everyone on earth below the age of 50 is house poor.
Yeah, I would think 95% of people that have a house in America and are below 50 years old would fall into this category.

I can see KlangFool’s point but I don’t agree with that being the meaning behind the term “house poor” as it’s generally used. To me “house poor” means you are putting away too much of your paycheck toward your house.

It doesn’t have anything to do with your net worth. It doesn’t mean you are poor, but it means that you bought too much house for your salary.

Studies show that most Americans who own a house are wealthier than those who don’t, because at least the money that goes into their house is being “saved”.

I am with Toons in that if you are meeting your retirement goals (e.g. 15% toward retirement if you are young) and then your PITI < 25% of your take home pay you are generally in good shape and I wouldn’t consider that house poor.

By KlangFool’s definition I am house poor but renting makes little for my situation, since renting would cost me monthly more than owning (albeit owning took a 20% downpayment).
The most precious gift we can offer anyone is our attention. - Thich Nhat Hanh

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BrandonBogle
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Re: Defining "House Poor"

Post by BrandonBogle » Fri Feb 23, 2018 9:23 pm

KlangFool wrote:
Fri Feb 23, 2018 4:10 pm
OP,

If the house price is more than 40% of your net worth excluding your house, you are "House Poor".

KlangFool
emoore wrote:
Fri Feb 23, 2018 5:08 pm
Ha. It's always entertaining when Klangfool responds to a housing thread. That's just his opinion of what is house poor. You don't have to agree with him, or justify why you don't think you are house poor to him. He does a great job of getting people spun up with his personal housing restrictions. Just because he doesn't agree, doesn't mean you are going to be house poor.

My definition of house poor would be more than 30% of your take home going to housing. But that's just my opinion and doesn't really mean much to anyone else.
This!

Though I'm happy to say by both of these definitions, I am not "House Poor".

madbrain
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Re: Defining "House Poor"

Post by madbrain » Fri Feb 23, 2018 9:24 pm

CppCoder wrote:
Fri Feb 23, 2018 3:33 pm
I thought house poor was defined as follows: You ask on Bogleheads, "Am I house poor." If When Klangfool responds you are house poor, then you are house poor. :twisted:
LOL

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randomizer
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Re: Defining "House Poor"

Post by randomizer » Fri Feb 23, 2018 9:25 pm

33% of my net worth is tied up in the house. Want it to be less than 25%. Not a great measure, but it is simple.
87.5:12.5 — HODL the course!

LasixDrip
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Re: Defining "House Poor"

Post by LasixDrip » Fri Feb 23, 2018 9:26 pm

raisinsaregrapes wrote:
Fri Feb 23, 2018 8:59 pm
LasixDrip wrote:
Fri Feb 23, 2018 8:40 pm
KlangFool wrote:
Fri Feb 23, 2018 4:10 pm
OP,

If the house price is more than 40% of your net worth excluding your house, you are "House Poor".

KlangFool
Couldn’t be happier to fit Klangfool’s definition of “Housepoor”. I’m blessed beyond belief, but Klangfool’s description of housepoor is the only way I could ever imagine myself “poor” in financial terms.

Keep on keepin on Klangfool. I started reading the thread, was waitin for it, and you didn’t disappoint.
I think by this definition most everyone on earth below the age of 50 is house poor.
Yeah, hard to even imagine. Say 26 y/o Mr. X has a 100k house w/ 20k paid, 180k in investable assets. House price >40% net worth excluding House? Sorry bud, you’re house poor. Like whoa.

EddyB
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Re: Defining "House Poor"

Post by EddyB » Fri Feb 23, 2018 9:29 pm

raisinsaregrapes wrote:
Fri Feb 23, 2018 8:59 pm
LasixDrip wrote:
Fri Feb 23, 2018 8:40 pm
KlangFool wrote:
Fri Feb 23, 2018 4:10 pm
OP,

If the house price is more than 40% of your net worth excluding your house, you are "House Poor".

KlangFool
Couldn’t be happier to fit Klangfool’s definition of “Housepoor”. I’m blessed beyond belief, but Klangfool’s description of housepoor is the only way I could ever imagine myself “poor” in financial terms.

Keep on keepin on Klangfool. I started reading the thread, was waitin for it, and you didn’t disappoint.
I think by this definition most everyone on earth below the age of 50 is house poor.
And I think that many over 50 are financially better off because of a prior purchase that made them house poor earlier in life according to KlangFool's definition.

H-Town
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Re: Defining "House Poor"

Post by H-Town » Fri Feb 23, 2018 9:36 pm

BrandonBogle wrote:
Fri Feb 23, 2018 7:42 pm
thangngo wrote:
Fri Feb 23, 2018 7:03 pm
BrandonBogle wrote:
Fri Feb 23, 2018 5:06 pm
thangngo wrote:
Fri Feb 23, 2018 12:58 pm
House poor = you buy more house than you need. Plain and simple.
IMO that is too narrow of a view. My house was 2x my annual income when I bought it. That purchase price to today's income is 1.5x. After income taxes, medical insurance, 401k, etc. my mortgage is less than 15% of my monthly take-home pay. That said, its a 4-bedroom, 2.5-bathroom house in a great neighborhood with a 1100 sq ft. walk-out basement on a 1/3 of an acre. This is FAR more house than I need as a single person, but I would definitely not classify myself as house poor.
You wouldn't but I would if I were you. Why do you need a 4 bedroom and 2.5 baths? You'll pay for all the expenses that come with a bigger house than you need. Those that would be saved and invested for your financial independence. If FI is not your goal, or least not as important as living in a big house, then I don't think house-poor term would mean anything to you. Try to think the term as a teaching tool to a young professional starting out and prevent them from making a bad decision in buying a house bigger than he or she needs.

Let's say FI = 50 x Annual Expenses.
Every time you increase your annual expense, your FI number would have increased 50 times over. :beer
There was a time when it was more than just me. But I would have bought this house even without that as factor. My mortgage is less than the average rent in this area. Even factoring in repairs, property taxes, renovations, etc. I’m coming out ahead and when it grows to two or more people living here, there won’t be a fundamental change in the finances.

And while I’m not FI, I’m getting closer. Currently roughly at annual expenses x 25. But again, my rent in a high crime rate was almost the same cost and the rent in the nicer areas around me are more than what I pay.
Then you're in very good position. I'm glad! House poor does carry a negative connotation, but I think the term is helpful for younger folks who have no idea what they're getting into when they're shopping for house outside their range. They can get to FI goal a lot faster if they buy only house they need.

Most people don't get they pay more than double the original price of the house if they count mortgage interest, PMI, transaction fees, etc.

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BrandonBogle
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Re: Defining "House Poor"

Post by BrandonBogle » Fri Feb 23, 2018 9:42 pm

thangngo wrote:
Fri Feb 23, 2018 9:36 pm
Then you're in very good position. I'm glad! House poor does carry a negative connotation, but I think the term is helpful for younger folks who have no idea what they're getting into when they're shopping for house outside their range. They can get to FI goal a lot faster if they buy only house they need.

Most people don't get they pay more than double the original price of the house if they count mortgage interest, PMI, transaction fees, etc.
Thanks!

Yeah, I had friends pushing for me to live on their street. It's a more upcoming area (though higher crime since its transitional still), no garage, no basement, and the houses I looked at then were 3 bedroom/2 bathroom, drafty (older houses) and almost twice the price of mine. Part of that is getting lucky with my specific neighborhood. It is very easy for people to way overspend and buy more than they need when it doesn't make sense.

Gray
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Re: Defining "House Poor"

Post by Gray » Fri Feb 23, 2018 10:29 pm

Here’s hoping Amazon HQ2 is built nearby. Then my home will definitely be an appreciating asset. :-)

Rus In Urbe
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Re: Defining "House Poor"

Post by Rus In Urbe » Fri Feb 23, 2018 10:41 pm

I have two definitions of "house poor."

The first one is carrying any mortgage whatsoever. In 1985, I bought a $300K apartment in Manhattan, putting down $100K and taking out a mortgage with the ungodly rate of around 11% (the best one could get at that time; I refinanced later at a lower rate. I hated the amount of money lost in interest paid.

I got smarter later. My next Manhattan apartment was in an up-and-coming area and I paid $129k in cash; I sold it later for $700k. No mortgage, just maintenance. That felt great.

In 2004 I bought an upstate home for $130k, taking out a short term mortgage (through an employer I got a special deal at 3% and no points, so I took it) and paid it off fully a few years later.

While this last house has appreciated considerably since (and we're put a lot of improvements into it), it only represents a single digit of our net worth.

AND THAT is my second definition of "house poor"----having a large percentage of your net worth sunk into your house. I prefer to have that percentage as small as possible because it means that I'm living in a much smaller/cheaper house that therefore has fewer costs associated with it, while the rest of our assets are elsewhere, appreciating nicely.

mark4269
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Re: Defining "House Poor"

Post by mark4269 » Fri Feb 23, 2018 10:43 pm

Some replies bemused me as unrealistic so I sketched an illustration of following the < 25% of take-home pay applied to PITI.

Let's say you make $100,000 per year in gross income -- not a bad income, better than most -- at Fortune 500 company. Fully funding health care and 401(k), monthly take-home pay is then at most $5,000. Twenty-five percent of $5,000 is $1,250. Where in the USA does $1,250 cover PITI?

LiterallyIronic
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Re: Defining "House Poor"

Post by LiterallyIronic » Sat Feb 24, 2018 12:06 am

mark4269 wrote:
Fri Feb 23, 2018 10:43 pm
Some replies bemused me as unrealistic so I sketched an illustration of following the < 25% of take-home pay applied to PITI.

Let's say you make $100,000 per year in gross income -- not a bad income, better than most -- at Fortune 500 company. Fully funding health care and 401(k), monthly take-home pay is then at most $5,000. Twenty-five percent of $5,000 is $1,250. Where in the USA does $1,250 cover PITI?
I'm in Utah and my PITI is $808 (after 29% down).

nps
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Re: Defining "House Poor"

Post by nps » Sat Feb 24, 2018 7:05 am

mark4269 wrote:
Fri Feb 23, 2018 10:43 pm
Where in the USA does $1,250 cover PITI?
I don't know but over half of Americans live there. Median PITI is less than $1100 according to Census Bureau.

mmcmonster
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Re: Defining "House Poor"

Post by mmcmonster » Sat Feb 24, 2018 7:12 am

Am I missing something?

I thought the classic definition of 'house poor' was that you owe more on the house than the house is worth (likely due to a falling housing market, damage to the house, or extensive upgrades made on credit).

Which means that in a catastrophe you can't just sell the house, pay your debts, and start over again.

chevca
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Re: Defining "House Poor"

Post by chevca » Sat Feb 24, 2018 7:23 am

That's called being upside down on your home, owing more than it's worth.

I would say defining house poor is like defining net worth around here. As many members as we have on Bogleheads, there are probably that many definitions.

Then of course, there are Klang's rules and definitions, which rule above all others. :happy

Simple Simon
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Re: Defining "House Poor"

Post by Simple Simon » Sat Feb 24, 2018 7:35 am

KlangFool wrote:
Fri Feb 23, 2018 4:10 pm
OP,

If the house price is more than 40% of your net worth excluding your house, you are "House Poor".

KlangFool
-"Honey, I have good news and bad news."

-"The good news: I had our house valued, it's worth 20% more than last year."

-"The bad news: this means we are now house poor."

-"In fact, if our house rises in value any further we're going to have the rip out all the plumbing and demolish the garage, or we'll be practically destitute."

grettman
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Re: Defining "House Poor"

Post by grettman » Sat Feb 24, 2018 7:39 am

It is hard to define because as you can see, everyone has a different opinion.

My view is that you must able to feed and clothe your family, have a means of transportation, fully fund retirement and then have a little left over for a reasonable amount of entertainment/travel. If your mortgage payment is such that you can't do all of these and you feel squeezed/limited in what can do -- to the point of not being happy -- you are house poor.

KlangFool
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Re: Defining "House Poor"

Post by KlangFool » Sat Feb 24, 2018 7:50 am

Simple Simon wrote:
Sat Feb 24, 2018 7:35 am
KlangFool wrote:
Fri Feb 23, 2018 4:10 pm
OP,

If the house price is more than 40% of your net worth excluding your house, you are "House Poor".

KlangFool
-"Honey, I have good news and bad news."

-"The good news: I had our house valued, it's worth 20% more than last year."

-"The bad news: this means we are now house poor."

-"In fact, if our house rises in value any further we're going to have the rip out all the plumbing and demolish the garage, or we'll be practically destitute."
Simple Simon.

It is based on purchase price. Not current market value.

KlangFool

KlangFool
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Re: Defining "House Poor"

Post by KlangFool » Sat Feb 24, 2018 7:53 am

Gray wrote:
Fri Feb 23, 2018 10:29 pm
Here’s hoping Amazon HQ2 is built nearby. Then my home will definitely be an appreciating asset. :-)
Gray,

Why is that a good thing? If your house price went up, you will pay more in property tax. The only time when the house price help is when you buy (low) and sell (high). In between those time, the house price affects your property tax.

KlangFool
Last edited by KlangFool on Sat Feb 24, 2018 8:01 am, edited 1 time in total.

Olemiss540
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Re: Defining "House Poor"

Post by Olemiss540 » Sat Feb 24, 2018 7:58 am

LasixDrip wrote:
Fri Feb 23, 2018 8:40 pm
KlangFool wrote:
Fri Feb 23, 2018 4:10 pm
OP,

If the house price is more than 40% of your net worth excluding your house, you are "House Poor".

KlangFool
Couldn’t be happier to fit Klangfool’s definition of “Housepoor”. I’m blessed beyond belief, but Klangfool’s description of housepoor is the only way I could ever imagine myself “poor” in financial terms.

Keep on keepin on Klangfool. I started reading the thread, was waitin for it, and you didn’t disappoint.
I have personally started to warm up to Klangs conservative position on housing.

MOST people hit their mid 30's with a newly minted salary and automatically look at the house or car they can now "afford" instead of looking at their savings rate and look at increasing their buffer. Klang has been through some rough employment patches where a house could be a cement block around the feet if you didn't have the net worth to support long employment droughts in the tech industry. Too many people automatically divert additional cash flow year to year into expenses which keeps them continually on the edge and Klang likes to live further inland.

I don't care what your housing costs are if you are saving 33% of your NET income each year. I agree with Klangs perspective that if you have a 20% down payment and can "afford" the monthly payments while saving 10% into retirement funds and have a net worth severely behind for your age/salary then you are "house poor" regardless of your DTI or other arbitrary percentages.

Klang may be a bit hard-nosed, but just because his life experience is opposite of yours doesn't make his opinion "wrong" and your opinion "right". Only in hindsight will anyone know.
I hold index funds because I do not overestimate my ability to pick stocks OR stock pickers.

halfnine
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Re: Defining "House Poor"

Post by halfnine » Sat Feb 24, 2018 7:59 am

When buying a home I'd be comfortable with having up to 40% of my net worth tied up in home equity provided a minimum of 20% down payment was used. At a 20% down payment that would allow for a house of up to a maximum of 2x my net worth.

Olemiss540
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Re: Defining "House Poor"

Post by Olemiss540 » Sat Feb 24, 2018 8:04 am

mark4269 wrote:
Fri Feb 23, 2018 10:43 pm
Some replies bemused me as unrealistic so I sketched an illustration of following the < 25% of take-home pay applied to PITI.

Let's say you make $100,000 per year in gross income -- not a bad income, better than most -- at Fortune 500 company. Fully funding health care and 401(k), monthly take-home pay is then at most $5,000. Twenty-five percent of $5,000 is $1,250. Where in the USA does $1,250 cover PITI?
Illinois, with 2.5% property taxes, am around $1000 PITI on a 15 year loan.

I think this is a sensitive subject because a much larger sample of bogleheads live in HCOL areas and thus have to stretch and arrange their personal finances to account for home purchases and then end up justifying their decision in this space as the "right" thing to do.
I hold index funds because I do not overestimate my ability to pick stocks OR stock pickers.

Locked