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I’m booking flights at the moment. Suzie and I are heading to the South of England to visit my brother-in-law and family in a couple of weeks’ time. They’ve just recently hit a major life milestone by purchasing their first home together, and we’re looking forward to getting a tour by the proud owners. I’m very happy for them; I’m also very happy for myself because I’m getting free accommodation by staying with them.
My brother-in-law is in his mid-forties with a wife ten years younger and has expressed nervousness at taking on such a large debt at his age, although he accepts it’s in the long-term best interest for his family.
This got me thinking about property prices and the random nature of where we happen to rest our hat and set down roots to raise our families, and how it interacts with portfolio size and retirement outcomes.
In my brother-in-law’s case, the property is on the south coast of England, which is a very high-cost property area to purchase. Contrast this with my neck of the woods, where property prices are generally considerably lower, and you have an interesting financial interplay between property wealth and portfolio size and retirement planning.
My situation, living in an area with lower property prices, translated into a smaller mortgage and lower housing costs. This, in turn, freed up extra cash to invest into my portfolio and participate in market growth. It also offered the extra benefit of lowering my wealth concentration in more illiquid asset classes like property, ultimately enhancing my financial flexibility and retirement planning.
For my brother-in-law in a high-cost area, acquiring a home involved a larger mortgage and higher debt, meaning a significant portion of his income is committed to housing for many years. This financial commitment will reduce available cash for other investments, potentially slowing the growth of their portfolio. Consequently, a large percentage of their total wealth may become concentrated in a single, illiquid asset—their home—offering less portfolio diversification compared to a more varied financial investment strategy
Often, career opportunities, family ties, or personal preferences dictate where we live, and these decisions have profound financial consequences. It’s like many areas of life, a bit messy and a trade-off between lifestyle, community, and financial strategy. This shows that our decisions are more often than not driven by personal human factors over the cold face of finance, and I personally believe that’s just how it should be. Particularly when it gets me free accommodation!
Strangely enough I was thinking about you last night and wondering how everything was going with the business sale. A future article I hope!
Delayed by 2 weeks (yuck). I’ll write more when we get the whole deal over the line and my head is a little clearer.
Another great article, thanks Mark.
Just to broaden the discussion a little…..
If the US has seen house prices rise, Australia said “hold my beer”.
From an article in June 2025 (https://www.apimagazine.com.au/news/article/worsening-global-housing-affordability-crisis-presents-major-risks-to-australians)
“Australia’s current median multiple according to the recently released report is 9.7x, a figure that has more than tripled since the late 1980s. Housing in Australia is now twice as expensive as the US, and still significantly above the UK’s median multiple of 5.6x.”
Australia has been wrestling with high housing costs for a long time. There are a lot of Australian millionaires who have relatively low investable assets due to the very high proportion of their net worth tied up in the primary residence.
Property “wealth” and savings capacity for retirement are inextricably linked and I think it is shortsighted (let alone not very diverse) to overly favour one over the other. That said I also recognise that many people are prepared to play geographic or property size arbitrage until it is perhaps too late for them to enjoy any meaningful equity release from their property.
I still maintain as I’ve stated before here that for those in major cities a valid retirement plan is pay off the mortgage on the best property you can afford then retire to the countryside* releasing a lot of capital and probably gaining space.
Many Californians apparently agree with you. They are moving here and driving up real estate prices. There has been a housing building boom for a number of years. The desert is being pushed back.
Dick Quinn makes a good point about the importance of relative income and housing prices in different regions. I lived this as an employee and manager at Lockheed Martin. In the mid-90s they decided to shut down some facilities in the Philadelphia region and move some of the work to the San Jose area. Although they offered what seemed like significant salary increases, the cost of housing far exceeded the increases. Most of the employees who took the relocations ended up in smaller houses, and significantly longer commutes. That being said, they also saw fairly significant price appreciation, especially the early deciders.
Later as a manager, hiring in multiple states, it was explained to me that the geographical salary variations represented differences in the cost of labor, not the cost of living. When aerospace engineers were readily available after program losses, or industry consolidation, areas like Southern California saw hits in salary. Alternatively, employees leaving the DC area to work on projects in Fort Worth saw a big improvement in their standard of living.
One of the children was enamored of the lure of California and after graduating went to work for a firm in San Jose. After a few years he realized that the high living costs were sucking his wallet dry. The president and CEO agreed and they relocated the entire company to the Midwest.
I spent a lot of time in San Jose 25 years ago and never could understand it. Housing prices were ridiculously high even back then, but if you went to a McDonalds, the cost of a Big Mac was about the same as on the East Coast. Where did all those McDonalds workers live, how much did they make, and how could the restaurant be profitable? Seemed like a house of cards, but apparently it’s still standing.
Ken, we used to wonder where did the teachers, police, and fire fighters live. Many of our transferred folks moved to the east bay, or south to towns like Morgan Hill and Gilroy.
There is an enormous amount of wealth in the valley, or so it seems. I recall a discussion with one of managers, a lifetime bay area resident. He said that on multiple occasions he had run into young engineers who he had hired out of school, trained, and seen them leave after a few years for a start-up. They were driving Porches and living in a better house then he was after 35 years in aerospace. Purely anecdotal, but telling nonetheless.
What you say has some truth, but there is more to it. I live in one of the highest cost areas in the country and my town is one of the highest cost in the state. However, that is reflected in incomes.
The median household income in the U.S. about $80k, in Nj $100k and in my town $203k. My town ranked 34th wealthiest in the U.S. in a Bloomberg survey.
median home price in USA $416,900. In New Jersey $600,000 and in my town $1.3 million. On the other hand, you get far more house for your money here than in areas of California for example.
So while some people may consume more of their income on housing based on where they live, it seems income to home pricing is pretty relative as you would expect.
I’ve heard many people say they couldn’t afford to buy their own home these days.
The house price to income ratio in my hometown is approximately 6.5, while it’s 11 where my brother-in-law purchased, making his area considerably less affordable.
And to add to this, the value of properties in higher cost areas can also appreciate at a much faster rate than low cost areas. I moved from a moderate metro-Boston area to a high cost metro-Boston area in the latter 2000s. Selling twelve years later brought quite the windfall, in comparison to what I would have had had I stayed in the original “lower value” house (no where near the same appreciation there). So, property can be quite an asset to one’s overall portfolio, and higher value properties can exponentially “outperform” lower value properties, granting that one has to make the asset liquid if the funds must be tapped.
In our case, an 1100 sq ft SoHo loft purchased in the mid-1980s for 110k evolved into the mortgage free sale of a Brooklyn brownstone in 2019 for 3.55 million, albeit one that had a private 2400 sq ft owner’s apartment on the lower three floors and 3 rentals on the top two floors. Our success was a combination of luck and willingness to purchase properties in areas that were a bit dicey at the time and to become landlords. We sold the the loft for 700k near the height of the dot-com boom in 1999 because SoHo had become overrun with tourists and designer stores and purchased the brownstone for 960k. We were also fortunate to sell our brownstone in December 2019 just before the start of the pandemic.
Obviously, I can’t comment about U.S. housing growth, but in my part of the world, a 60:40 portfolio would definitely have performed better than house appreciation over the last 20 years. Although, I suspect the portfolio performance would still have been superior in the U.S.
I confess ignorance about the UK housing market, but would be surprised if there was not a basic similarity mutatis mutandis regarding the higher appreciation of more valuable properties. To be clear about my situation, the property move was made for lifestyle, not portfolio, reasons. My wife and I for years maxed out all tax advantaged plans, invested closer to 70/30, and also saved in taxable accounts. The move to the more expensive area cut my commute from 35-40 minutes each way to 10 minutes or less. We did not think of the new property as an investment, but it turned out to be a pretty good one. Mostly good luck, selling near the top of the market in the lower cost area, and buying into a somewhat depressed “high value” area. Only in hindsight did it turn out to be a great way to diversify our total financial picture. So, to get back to the point I was attempting to make, buying in an area that stretches your finances “can” result in a much more advantageous overall financial situation (i.e., it is not an obvious mistake). And regarding the superiority of the 60/40 portfolio over any given period, as I’m sure you’ll agree, past performance is no guarantee of future results.
You certainly lucked out with your property journey, I’m jealous! Although I did achieve a decent profit from our one and only house move, it was nothing like your experience.
Past performance is no guarantee of future results. I totally agree and would note this also holds true with real estate. While the idea of “higher appreciation for more valuable properties” might seem intuitive, current UK market trends show that affordability is a stronger driver of growth, likely due to the impact of higher interest rates on borrowing capacity. This makes more affordable properties more accessible to a wider pool of buyers, pushing up prices faster than more expensive properties at the moment. But I agree that anything’s possible, given the right market conditions and buying environment
Thirty-five some years ago it was the affordability factor you mention that applied for our first house purchase; our rate was about 10.35, as I recall. Twenty years and a bunch of refis later, when we sold out of the “affordable” area, as outlined above, both our situation and the overall market were at different points in the cycle. Cheers!
We did something that probably would horrify most HD readers, not to mention Dave Ramsey—we got a new 30-year mortgage at age 60, in 2020, taking advantage of the very low interest rates at the time. Nor are we in any hurry to accelerate payments on our mortgage.
There are several reasons for this. One is the obvious—we can do better investing those extra principal payments, even in a high-interest savings account, than paying down a 3.145% loan. And with locked in pension and Social Security income, the mortgage payments will never be a stretch for us. (Now, our HOA payments are a different story, but unless we move, we’re stuck with that.)
Another reason is psychological. For several decades, we had a huge proportion of our net worth locked up in our home. When we sold it and bought our current home, we made about a 25% down payment, saved out additional funds for furnishing and decorating the new place, and parked the rest in savings. That cash cushion, which we’d never had before, makes me feel much better. I’m not eager to return to having tons of money tied up in the house. Finally, there’s a non-zero possibility that we’ll move again in the next 5-10 years. Shoveling cash into the mortgage if it’s not our forever home doesn’t make a lot of sense to me at this point.
Dana, we signed the contract to build our current home in late 2022, when interest was 3%ish. We would have done the same as you, but by the time the house was finished rates had gone up so we passed on having a mortgage.
Your approach may not be conventional wisdom but makes a lot of sense to me in your specific context.
Thanks!
Dana, I can understand what you said about the psychological reasons for your decision. We were house poor in Maryland it was not a good place to be in. We are mortgage free now, and for us it is a good thing. But I can understand why you did what you did in 2020. The rates were great then. Both of our kids bought/refinanced then. Chris
Mark, this is very true. When we were younger, we lived in Maryland and the cost of housing was much more than it was when we moved to a Midwest state 12 years later. It cost us being able to invest much in retirement when we were young, and we had to play catch up later. Congratulations to your brother and sister in law on their new house. I am thinking it is more expensive to buy a house where they are vs where we are. Chris
I’m not sure about valuations. Our main home was originally a two-bedroom bungalow that we converted into a four-bedroom, two-storey house, around 3,000 square feet total floor area. Maybe in the region of $450,000 to $500,000 value-wise. I guess property markets are very different between countries.
Your house is worth more than ours, but it is also larger. The house we sold in Maryland we definitely couldn’t afford to buy today. We also lived in a suburb in a Midwest town where they were doing tear downs in our neighborhood. We sold our small ranch home to a builder and they built a mansion home on it. The land was what was valuable. We were shocked that it recently turned over again for over $1 million 10 years after we sold. Definitely out of our league. LOL! Chris
Where we live is one of the lowest cost real estate markets in the country. Ten or so years ago we bought a 2100 square foot condo, on a golf course, for $120K. Chris and I were not married at the time, and we each ponied up $60K cash. That deal enabled us to save 40% of our income each year in order to hit our savings goals. Had we lived in an area that would see a condo such as ours cost 5 or 10 times the price we paid, we never would have been able to grow our savings as we did.
Wow, that’s amazingly good value. Has there been much growth in property values in the area since then?
We sold that unit 2 years ago for $240K, and it has appreciated a bit more since then. Generally, prices have gone up, but this remains one of the lowest price markets in the U.S.
I don’t want to tell you the cost of our HOA and property taxes, as it would make our New Jersey friends jealous🤐
Go ahead, make my day, but I suspect not. Our HOA $950/mo our taxes $13,500 for a 1,996 sf condo. On the other hand, taxes on Cape Cod with 1/3 acre, $2700 a year.
OMG Dick,
What do get for your nearly 12K per year HOA fees? In NH, considered a high property tax state (no income, nor sales tax), we pay just over 7K in property taxes on an 1,900 sf house on 1 acre.
Our 55+ community is on 19 acres of mostly landscaped property with two ponds and a large pool and clubhouse, tennis courts and putting green.
There are only 108 condos spread among nine buildings. Each condo ranges from 1996 to 2200 SF and that determines taxes.
The HOA fee covers all landscaping, snow removal, maintenance and upkeep for the property and the buildings and clubhouse.
Go ahead and tell Dan – your NJ friends are happy for you.
LOL Rick, the taxes at the condo recently sold were about $4k/year, the HOA was $350 /month.
Property tax at our new home is $6K, but the association fee is only $180/month.
😂