And We’re Back to Home Ownership! But Why Now?

After years of planning, overanalyzing, and thinking too much, in July we listed our house in Denver for sale and hit the road. Our goal was to spend up to a year traveling in search of our next home base. Five months later and we are back to the game of home ownership again.

In this post we examine the unexpected location of our new home, the current home buying environment, and a hard look at whether current mortgage interest rates are the final incentive to jump into home ownership. Should you consider home ownership right now?

In our minds, we always assumed we’d end up back in Flagstaff, Arizona, where we both lived a decade ago while I attended graduate school.

Well, it didn’t turn out that way. So, where are you going to come visit us?

St. George, Utah

I’ve been coming on climbing trips to this area for five years straight. I’ve watched this place grow, and each time I’ve stared out the window longingly, wondering if I could live here. Now we’ll find out.

If you are not a climber, mountain biker, or Utah native, you are probably wondering why the hell St. George would make the final cut of a list supposedly unencumbered by jobs, schools, or other common lifestyle constraints.

Couldn’t we theoretically live wherever we want? Yeah, not really.  We’ll discuss that in a moment.

St. George and the surrounding region is an outdoors mecca, hosting some of the nation’s best climbing, mountain biking, hiking, and treeless opportunities for a savage sunburn. Zion National Park is an hour away, skin-friendly sandstone boulders litter the city limits, and world-class, steep limestone bellies abound in the Mojave Desert borderlands. You know how I feel about limestone bellies.

Furthermore, with the soon-to-open (and monstrous) Contact Climbing Gym, it seems St. George may soon transition from a giant retirement home to a town supported by a growing climbing community. If I am going to participate in any speculation, I’ll take that bet.

I’ve already discussed our travels thus far in St. George a bit in the following posts:

Four Months on the Road: Can This Really Last?

Tales From the Road: Two Cows and a Horse

St. George Cost of Living

The kicker for us was the cost of living. As I’ve mentioned repeatedly, and beat the table on the Nugget Climbing Podcast and the Power Company Climbing Podcast, optimizing (or eliminating) housing expenses is numero uno in kickstarting or securing a path to financial wellness. In the end, we evaluated a number of towns—and while we could have afforded many of them “in theory”—we would need to stretch our available funds and chew up a higher percent of our net worth.

With prices skyrocketing across the nation, we set a budget based on a percentage of our net worth, not to exceed 25%, and let the chips fall where they may.  

In the end, we decided to make a bit of a business decision. But that’s not the entire story either.

The Home Buying Process

Let’s first examine the process of buying a home in today’s market.

Should You Consider Home Ownership Now?

I’ve been hearing a lot of jawing about low interest rates and other incentives that might encourage buying over renting. All are true: mortgage rates are particularly enticing, well under 3%.

However, let’s examine prices. As of July, home prices have climbed over 5% year-over-year at the national level.

Here in St. George, prices have increased over 8% in a year!

For a real shocker, check out Bozeman, Montana. Home prices in Bozeman proper have surged over 20% in a single year!

The culprit for these dramatic price swings? Low inventory and high demand. At least a pinch of hysteria as well, as is typical amongst times of wildly swinging prices.

So, let’s think about this for a second. If you were unwilling to put in an offer on a property listed at $400,000 in Bozeman last year—with mortgage rates around 4.5%⏤are you now amped to step into home buying now that the same property is selling for $480,000 with a sub-3% mortgage rate?

Oh goodie, let’s do some math!

Do Low Interest Rates Incentivize Home Ownership?

Below is a chart that examines the year-over-year changes in Bozeman, St. George, and a hypothetical location with a 3% yearly price growth (considered a typical long-term average).

How much is the potential buyer saving by buying now instead of last year?

Well, it depends. If your preferred town has experienced particularly high price growth, like Bozeman, you aren’t saving much. However, for a town with low year-over-year growth, hell yeah man, you just bought yourself back a year or so! However, ask yourself:

• Can I afford the down payment? Am I willing to take on PMI if not?
• Can I afford the monthly mortgage? Is my job really secure?
• Am I cool with all that interest payment? Nobody gets a free lunch. Or a free mortgage.
• Most importantly, are you ok with the opportunity cost of home ownership?

Play with your own numbers here.

Bottom Line: Mortgage rates are now lower, but home prices in many desirable towns have climbed considerably year-over-year. As such, in many cases of high yearly price growth, the borrower is still liable for (1) a higher down payment, (2) a slightly lower monthly payment, and (3) a 30-year payoff that is still hundreds of thousands of dollars more than the list price. In some cases, if you thought home ownership in 2019 was too expensive, then it still is. If you are financially ready and have ample funds for the stuff I’ll describe below, now could be a good time buy.

Other Costs of Home Ownership to Consider

Below are some of the most common (and often disregarded) costs of home ownership.

Maintenance/Renovation Costs of Home Ownership

Remember, once you purchase a property, the spending doesn’t end. One thing we really like about this St. George property is the age. It was built in 2017, in a town noted for quality new home construction. The former retiree owners took care of this place like a newborn infant, swaddling it and letting it gently puke milk on their loving shoulders.

The inspection came back 100% clean. I couldn’t believe it – not even a leaking faucet.

When we bought our Denver property back in 2013 – which was at the time 77 years young—we were handed a college binder of photos and documentation by an inspector who claimed that…

Well, for these old houses, this one looks pretty good!

We thought that age and character were worth the money. It’s not. We paid thousands of dollars in maintenance and repairs over the years. That even includes many DIY projects. We lost more than a little sleep worrying about this, that, or the other.

The old adage is to sit aside 1% of the home value each year in maintenance. Perhaps we can now squeak by with a little less. Renovation costs are wildly variable, but don’t expect to remodel a kitchen without spending thousands.

From that point forward, we called it the “Divorce Door.”

Moving

Moving is so lame. We really did a bad job here of keeping our expenses in check. Back in mid-June when we decided to sell on short notice, we didn’t give ourselves much time to sell off all our crap. We filled a huge storage unit with stuff we mostly didn’t really need, paid monthly to keep it there, and now have to deal with moving it across the Rocky Mountains in winter. Go us!

Even though we plan to rent a truck and move it ourselves, we are going to pay a couple of beefcakes to help load and unload, as we did back in the summer. All told, it will probably cost us over $3,000 to move and store our crap. There’s easily $10,000 worth of stuff in there, so maybe that cost isn’t so bad.

Why not move it 100% ourselves? Funny story, glad you asked. One time we moved a new couch into the house. It was too wide to fit through the door. As such, we had to remove the door from the hinges, pass the couch, and then fight to get the heavy-ass door, and ourselves, back on our respective hinges.

From that point forward, we called it the “Divorce Door.”

Now we pay.

Property Taxes and Insurance

Even with a paid-off home, no one escapes property taxes and insurance. All told, we plan to spend approximately $3,000 per year in combined taxes and insurance.

Home Owner’s Association Dues

I’ve never lived under the mysterious invisibility cloak of an HOA, but now I do. Honestly, I kind of hate rules for a place I own. That said, in some towns there is a clear distinction in quality between HOA and non-HOA neighborhoods or subdivisions. St. George is one of those towns.

Thankfully, our HOA dues are a measly $24/month, which is a big win for us. In many neighborhoods, those fees approach or exceed $200 per month, which for me seems outrageous. That said, many of these neighborhoods feature impressive pools, playgrounds, or even desirable perks like yard maintenance or even roof replacement. To each their own – I don’t care how nice those pools are, kids still piss in pools. I’m kidding of course, but be sure to read the fine print.

(Related Post: This Just In: The Real Cost of Home Ownership)

What’s It Like to Buy Right Now?

Honestly, it’s kind of crazy. I can only speak for the west, but here’s the skinny on the current housing market of all the towns we’ve evaluated.

• As discussed above, prices have been climbing at an above-average rate.
• Listing price is just the start. Homes are typically settling well above asking price, driven by bidding wars (high demand, low supply). It may not be uncommon for deals to settle 2-10% above the listing price.
• Cash is king. Folks are cashing out in pricey cities and looking for deals in smaller towns and cities. Yep, that’s us too. It seems an above-average amount of all-cash offers are being floated (I don’t have data to support), which erodes the competitiveness of those who are financing the deal. In essence, the financed offer will need to be particularly sweet to win against an all-cash offer.
• People are even doing ridiculous things like waiving home inspections in order to look more attractive as a buyer. That’s a ridiculous thing to do. Except on a brand-new home. Maybe.

Why Did We Decide to Buy Now?

We knew when we left Denver that this road trip would last a year, at the most. If I’m being honest, I could see the ship beginning to leak in the earliest days. It was obvious that we weren’t going to make it a year in this kind of living environment. I could write thousands of words about this subject in a mildly buzzed manifesto, but I’d like to refrain from my review of this trip until I’ve properly given myself the gift of hindsight and a very long shower.

We wanted to evaluate a number of towns along this trip, and we were successful in that regard. We crossed several off the list, for reasons ranging from cost of living, to weather, to crimps that are simply too sharp for my sweaty-ass skin. I mean, let’s be real, right? No skin, no send, no happy. Below is a spreadsheet I published in this post of some of the criteria we were using to quantitatively evaluate various towns and cities.

(Related Post: Relocation: A Guide to Moving and Housing Affordability)

We initially assumed, like almost any year prior to 2020, that the housing market would cool its jets after about August or so. As summer turned to fall and I kept witnessing all the housing craziness mentioned above, I too started worrying that we would only be paying more to wait.

That’s the game. No one has a magic crystal ball. But my philosophy is to never sit around a wait for a dip. I assume that today is always the second-best time to buy, followed only by any time in the past.

A Call to Action

We knew we didn’t want to prolong life on the road, sitting around to wait on the heated summer selling season. We were parked in St. George, an area high on our list in terms of cost of living and outdoors accessibility. We decided to act, and started viewing properties in person after years of Zillow perusing.

We were astounded by the value compared to Denver, and we pulled the trigger on a beautiful home (for us). This house could have easily cost $200,000 – $300,000 more in many areas on our list.

We used the proceeds of our August sale in Denver to make a competitive all-cash offer in a neighborhood we really like.

Note: We did not invest the Denver house proceeds in the stock market. Investing for anything less than at least five (but more like 40) years is gambling! We kept our Denver house proceeds in a few high-yield savings accounts. Why not just one? Savings accounts are FDIC insured up to $250,000, so we capped our contributions to any given account at the insured limit.

Why Didn’t We Finance this Round of Home Ownership?

Why didn’t we finance the deal with such great mortgage rates? Here’s why:

Cash is Competitive

We needed to be competitive. In NOVEMBER there were four offers on our new home. Three of them—including ours—were all-cash. All of them were above the asking price. We won our final bid by only $1,000. It was heated, stressful, and scary. We paid 8% over asking, but I’m almost certain the listing agent low-balled the property to create a bidding war in the first place (not uncommon). By our realtor’s comps, we probably paid 2-5% over a fair list price.

For what it’s worth, we paid 6% over asking for our Denver house in 2013. We sold that same house for 5% over asking back in August of this year. Nothing has changed! Were the costs of home ownership worth it to us?

Difficult to Get a Loan Without a Job

We have no jobs, and as such have no traditional income. While investments can be considered by a mortgage lender, documenting a stable income stream is far more challenging outside of the traditional mold. Those without a regular source of income are hard-pressed to get a mortgage company to throw down in absence of a stable employer.

Debt is Lame

We really, really don’t like having debt. Even “good” debt. Do you know how good it feels to live in a paid-off home that you actually own? Well, it feels about the same as any home, but much better. It’s yours.

If the stock market takes another dump and our net worth takes a big hit, we don’t have to worry about making the mortgage payment. Housing costs are typically the biggest of the biggest fixed monthly expenses. It feels really good to have this chunk of our assets tied up in something that we truly own.

Sometimes the math isn’t everything. And in the event of a market collapse, the math may very well be on our side.

Summary: A New Phase of Home Ownership

Does this feel like a home run for us? Like most things in 2020….not exactly. We have reservations about the town we will now be calling home. Culturally and climatically, St. George is vastly different than any other place we’ve lived. I mean, look at these beer laws! Coming from Denver, with a brewery and weed shop on every block, this will take some adjusting.

Thankfully we have a relatively unencumbered ability to travel often. With the money we’ve saved in buying here instead of ponying up to live in a town with a higher cost of living, we can now afford to travel often and comfortably. Hell, even a deliciously sinful escape can be found only two hours away in Las Vegas. Finally, who is to say some happiness pot-o-gold really exists in a hip town anyway? I don’t buy it.

No matter where you go, there you are.

I’m resolved to work damn hard to build a sense of community here. If you are local, reach out! If you want to come visit for a winter escape, reach out! Especially if you have a dreamy summer escape in return. 😉

That’s enough on that! So, what do you think? Any words of caution/advice/encouragement about life in southwest Utah (other than the typical well-known quirks)? Would you buy in today’s market?

---

Remember, the best laid plans mean nothing if you can’t take action today. Have questions? Need some feedback? Hit us up on the Contact page.

If you enjoyed this post, please subscribe here for much, much more.

Thanks guys, see you next week.