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Make Your First Home Your Last: The Case for Not Moving Up

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Home has become work and school for millions of people. Many residences needed to somehow shift overnight to accommodate two workplaces and multiple classrooms because of the coronavirus.

With schools and businesses signaling that these conditions will extend at least through the spring, it’s no surprise there is a stampede of people seeking more space. But when so many are acting on instinct, the best move may well be to slow down and ask some counterintuitive questions.

Try this one on for size: Should the house you’re thinking of as a starter home be your forever home instead?

This is a tricky subject, like many of the biggest questions in personal finance, because of the complex stew of money and feelings that are involved.

First, the money. A home is an asset with a value that could make up a substantial proportion of your net worth. Hopefully, that value grows over time. And right now, with mortgage rates at record lows, it’s tempting to go as big as possible.

But there are other things you could do with any extra money that you might otherwise put toward a bigger or better home. That incremental amount could go into retirement savings instead, or a 529 college savings plan. Or you could give it away to people who don’t have the luxury of contemplating these sorts of trade-offs.

The case for staying small need not be some scolding ode to parsimony. A more modest home can leave more money in the budget for travel, expensive hobbies, or a getaway abode by a lake or mountain. Living smaller also helps the environment.

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Now, those emotions. Spending more for a bigger dwelling doesn’t make sense unless there is a high psychic return on the extra space. But if you’ve never lived bigger, it’s hard to predict how much happier it will make you. And how do you weigh that qualitative return against quantitative trade-offs rendered in dollar figures?

There are some facts to keep in mind.

Ever since the collapse in the housing market during the last big recession, the idea that your house is not, in fact, an investment vehicle has become common. Wise as this is, it doesn’t change the fact that a home is still an asset. And you should think hard about how any such asset might appreciate (or not) over time.

So much of any growth will depend on where you live, and too many of these kinds of conversations are framed around places like the San Francisco Bay Area, parts of Brooklyn or gentrifying areas where there have been enormous gains in property values.

Nationally, however, the numbers aren’t so steep. Data from CoreLogic’s home-price index shows that over the past 20 years, the average increase for single-family homes priced at 125 percent or more of the median home price in their region is just 3.4 percent annually. For homes at the 75 to 100 percent level, the gain has been 4.3 percent.

Consider maintenance costs, too. A newer home — say, less than five years old — might require just 1 percent of the purchase price in annual expenses, said John Bodrozic, a co-founder of HomeZada, a tool that helps owners keep track of costs and improvements. But if your home is 25 years old or more, 4 percent is a better estimate. If history is any judge, putting money into stocks over periods measured in decades should yield a better return.

Good professionals really can help determine what “return” ought to mean to you, though. Joe Chappius, a financial planner in Buffalo, suggested one basic strategy: Consult a few elders.

Find someone you trust who traded up 10 years ago, Mr. Chappius said. Very few of his clients who did so now think it was the best financial decision they ever made. More often, they have two rooms they rarely use.

A financial pro can also help you prioritize, including getting you and your spouse, if you have one, to agree on goals and dreams — and what’s worth sacrificing in the present to achieve all of the former and reach for some of the latter.

Once that baseline is set, they have specialized software that can make talking about the financial trade-offs easier. Mr. Chappius and Jeff Wolniewicz, partners in the firm Complete Wealth, walked me through their process this week using numbers that are typical for their home-seeking (or home-reaching) clients.

For any given trading-up transaction, a client might need to move $1,000 more per month to the housing budget. What might that mean right now? Perhaps it’s just a severe reduction in travel or eating out. But if money is already pretty tight, it could mean that no saving for a child’s college can even begin — and a $500 slug of monthly savings can ultimately pay for well over half of the cost of a state school.

Or trading up could require a reduction in retirement savings that might extend your time in the work force. For people who love what they do, perhaps that’s no problem. But how prepared are you to decide that now?

“We’re using the numbers to bring things back to a values-based conversation,” Mr. Wolniewicz said.

There may be a compromise solution if you’re craving more space. An addition to your home might be possible — and cheaper than a move. Ditto an interior renovation that allows for more people to be more productive without interruption.

“The thing about Covid is that it’s hopefully a short period, but it really puts a very fine point on the need for flexible spaces that can do double duty,” said Sarah Susanka, who has been preaching that gospel ever since 1998, when her book “The Not So Big House” came out. “It’s an acoustical issue.”

Danika Waddell, a financial planner in Seattle, suggested another framing question: What might you regret if you stay small?

Get granular here and think beyond the pandemic, if you possibly can.

Is your love of hospitality and large gatherings one that you would act on frequently? Hosting Sunday supper each week in a newly oversized great room can bring joy beyond measure. But maybe you’re just letting your desire to host a few holidays each year dictate your feelings about a six-figure real estate decision.

If you’re a parent, are you fine with your house not being the place where the gang gathers? (Or would you actually rather not have teenagers hooking up in the basement guest room or smoking pot in the yard?)

And when relatives come to visit, will you regret having to put them up in a hotel? Maybe not! But if you want them around for an entire season each year, for many years to come, the bigger house could make sense if you are certain.

“The people who are generally the most happy are the ones who avoid the more, more, more and understand what is enough for them,” Mr. Wolniewicz said. “That takes courage, to stand firm on what your enough is, especially if it’s in contrast to what the world says you should want more of.”

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