Champagne corks should be flying skyward, and glasses should be filled with effervescent bubbles of celebration. I smashed my networth goal of $2.15M and can move to the mountains and retire!
In fact, I’ve beaten the original 2 year / $2.15M goal with aplomb. After just 15 months, I currently sit at $2.3M. This includes $150K in a safe 5.5% yielding money market fund that is waiting to be deployed as a house down payment.
On top of that, my already conservative FI position will be backstopped by WIFI (wife financial independence), as my spouse plans to work a few more years before joining me.
It seems I am in a failproof position and could hang it up today, so why do I keep badging in every morning to serve a corporate empire I despise?
The answer will come as no surprise. Its the number one cause of inflation and the top economic soundbite of the last couple years: the frozen real estate market.
Because my retirement plans are deeply intertwined with my relocation plans, the hard freeze that obliterated the real estate market has also frozen my retirement plans . . . at least for now.
Real Estate is dead
90% of home sellers are carrying ~3% mortgages that they can’t afford to exchange for today’s 7.5% rates. Worse, these rates will remain high throughout 2024 and may only be marginally improved in 2025. The days of 3% rates are dead, and the housing market might limp along for many years before returning to pre Covid levels.
As we all know, real estate is also swayed by micro-regional economics, so some Americans might fare better than average. But local conditions make my situation far worse than the national average.
On the one hand, all indications point to a seller’s market in my town, where I can sell my house quickly for ~$475K in a matter of weeks if not days.
On the other hand, my chosen relocation area (Denver metro) has a toxic mix of local economic conditions that make it the most constrained market in the U.S. as of this writing.
Denver is a Nintendo Wii
According to US New and World Report, Denver metro is the hottest housing market. Healthy markets should have 4 – 6 months of homes in supply, but Denver has just 1.5 months.
And most of what’s left is on the low income end of the spectrum, which has driven the median price down by -10% from its 2023 high. Once you move into the middle-class territory, inventory is nearly non-existent.
Supply is so historically low that serious sellers are contracting via “pocket sales” or other backdoor means prior to listing.
It reminds me of the great 2007 Nintendo Wii supply crisis. Shelves were empty for well over a year, including digital store fronts that flashed “in stock,” only to revert quickly back to “out of stock” before most shoppers could complete their order. At its zenith, scalpers were snatching up pallet loads of Nintendo Wiis fom their local Walmarts or Targets and reselling at 50% markups online. Those with days jobs (and a life) were fucked. Of course, extremely motivated shoppers could eventually find one if they devoted their lives to cutting in front of other ravenous Nintendo fans, but not without significant pain, price concessions, timing, or luck.
That method is fine for a Nintendo; buying from a scalper won’t ruin your finances or your life. But the same can’t be said for housing.
I waited more than a year to buy a Wii at list price. The Denver home I’ve targeted costs more than 3000 Wiis – I can wait this decision out too until the store has units on the shelf, and that clearly is not going to happen in 2024.
Let me explain 7 reasons I am putting off relocation and retirement until the housing market recovers.
1 ) Mortgage Optimization
If we retire now, it will be difficult to secure an “asset-based” mortgage without W2 income. While we could pay in cash instead, I am not willing to incur a large tax bill nor pull out of so many investments. Therefore, I will likely work at least until we reapply for a mortgage in 2025.
2 ) Synchronize move with school year
I want to avoid school disruptions, so my window to buy and move over the summer is short – let’s say April through July. There is no inventory right now, and that won’t change any time soon, so that means moving my relocation plans to 2025.
3 ) Inventory will improve
Next year, housing supply will increase. Not only will this open up a few targeted neighborhoods that currently have 0 listings, it will also give me negotiating power. I want to have at least 3 or 4 acceptable options, so I can walk away from a bad deal and have fallback options.
4 ) Realtor Fees will come down
The NAR collusion settlement is still sending shockwaves. By July it will become law, and the standard 6% commission will be history. This will save me ~$13K in fees in selling my house. It will also make it more attractive for Denver-metro home sellers who will come off the sidelines.
The NAR settlement will also give well-funded buyers like me advantages, now that home buyers instead sellers will have to pay the buying agent separately and will need more cash.
5 ) I will reach 401K vesting
My new employer’s 401K match will be fully vested by Jan 1, 2025. Its sum wont make or break my financial independence, but I don’t want to leave $25K on the table either.
6 ) Potential new car purchase
My cars are getting long in the tooth: an 11 year old Chevy and a 17 year old Corolla my kids nicknamed Crapola. Both have cracked windshields and over 100,000 miles. I’m proud to avoid the American obsession with spending too much on cars, and I hope for several more years before either gives up the ghost. Father time might have other ideas before I move to Denver..
7 ) More cash baby
One more year syndrome is a label put on wealthy people too scared to retire. But the condition comes with perks. With two earners and a $2.3M net worth, one more year syndrome is likely to yield us ~$300K more wealth. Necessary? No. But extra cash will make it more comfortable and flexible for a cross country move to the country’s hottest real estate market.
When price equals value
When it comes to spending money, I’m stubborn as hell. I’m not sure it’s my best trait, but it’s ingrained in me after living half my adult life in poverty or on low income.
I believe that price and value are two different things. Price above actual value is capitalism at its worst; its what keeps the rich rich and the poor poor. I believe price should equal value, and I usually refuse to purchase when it doesn’t.
No buying frenzy, market dynamic, convenience fee, or “limited time” offer will open up my wallet. I will not pay $3 for an iced tea. I will not pay $13 for the appetizer with 3 limp eggrolls. I will not buy Nintendos or anything else from scalpers. I have waited a year or more for consumer sales or refused to buy all together.
The key to getting rich in America’s free market capitalism is to refuse to play by its “price over value” rules. This is a point I am too stubborn to bend on, and it’s even more critical to abide by it when buying a house.
Shelter costs are America’s number one expense. In a high inflation era, its no wonder that its also the asset with the most volatility in price, quality, and availability.
Most American can’t afford to get home finances wrong and yet they do. I actually can afford to get it wrong and yet I won’t.
That’s why I am and will remain financially independent and why most Americans are one job loss away from financial ruin.