Which is more: your home equity or your savings?

[JudicialTyranny]

We have more in savings than home equity, but it depends on what is considered "savings".

I consider my IRAs and 401K as "savings", as well as mutual funds and stocks I own outside of retirement accounts. But when you read the dire articles about savings rates in the USA, they don't include these things which distort the statistics.

Another reason we have more in savings is that I chose to have a mortgage even though I could pay off the house. It's not a huge mortgage, but I refinanced when interest rates were near the bottom (5% on 30-yr mortgage).

I took the amount I would have used to pay off the house and put it in some fairly safe investments. With a mortgage rate of 5% (effectively lower because of deductibility of mortgage interest), it was not hard to meet or beat that rate. Especially now with money market rates nearing 5%.

So if I should need that money in the future (such as college tuition), I have it effectively at a fixed 5% tax-deductible rate. If I waited until then to refinance or use a HELOC, who knows what interest rate I'd be paying. That's why I was not a big fan of people paying cash for houses or paying off mortgages back in the early 2000's when interest rates were historically low. Money was cheap and wasn't going to stay that way forever, so locking in the cheap rate seemed like a better move.

 

[ACDSNY]

With DD just finished with college and paying for her Sept wedding (250+ guests) and DS away from home and in college our savings are dewindling fast. Thank goodness we have a lot of equity built up. Hopefully in a couple of years we can get back to saving again.

We used to be in the country, but our city is growing so fast it's getting closer and closer to us all the time. I'm sure at some point we'll have to sell our land and move somewhere else so we aren't surrounded by houses. I'm just hoping we can stick it out until we're ready to retire.

 

[beachbunny]

dvcgirl: I absolutely agree with you. If you are 40-50 and have $25K in a 401K you'll need to do some serious downsizing to tap into that equity. If I can ask, what made you decide to move to Florida? My DH and I talk about doing that a lot, but for now it is just a pipe dream - woohoo more time for that equity to grow!

 

[dvcgirl]

dvcgirl: I absolutely agree with you. If you are 40-50 and have $25K in a 401K you'll need to do some serious downsizing to tap into that equity. If I can ask, what made you decide to move to Florida? My DH and I talk about doing that a lot, but for now it is just a pipe dream - woohoo more time for that equity to grow!

Primarily....the weather. We both just grew tired of winters. And we do love the weather here, especially from October through May. June through September is very hot, but we'll take the heat over the bitter winters.

There is an awful lot of violent crime here in Central Florida though, something that is a little unsettling. Orlando is well on it's way to shattering the city's records for murders in one year. It just seems that everyone here has a gun. And so a typical bar fight or any simple disagreement ends in someone being shot. We recently had a murder where a woman was gunned down walking to her apartment complex. The two thugs shot and killed her for her purse. Ten minutes later they used her credit card to purchase soda and chips at a local convenience store. Thankfully their faces were plain as day on the surveillence camera. Apparently murders are way up in Tampa, Jacksonville and Miami as well. So this is a statewide issue I suppose. Just something to think about...

 

[barkley]

Right, I hear you....having all that equity is wonderful. That's exactly what we had in our home in NJ before we sold it....a little shy of a million. Still, it was only when we decided to move down south that we unlocked a good deal of that equity and invested it into retirement accounts.

I guess my point is that equity is a wonderful thing, but it can't be the only component of a balanced portfolio. And I think a lot of people out there are feeling "house rich" and banking on that money for retirement. There are a whole lot of 40 and 50 somethings out there with a couple of hundred grand in equity with only 25K in their 401K. Unless they sell and downsize significantly, or sell and rent, the house doesn't do them much good at all.

And I also find it interesting just how much it costs us to live in a house that we own outright. We still have a decent montly outlay of cash here....just in utilities, homeowners insurance (ours just went up another 35%!), homeowners association, lawn and pest control (we cut ourselves). We could sell this house, invest the entire proceeds from the sale and rent a comparable home for just slightly more than we spend to run this house.

you are'nt kidding-between property taxes, homeowners insurance, pest service (landlord pays for it here), security system (to get a break on homeowners insurance), special property owner bonds, not even taking into consideration any repairs or upkeep-moving from the home we owned to a comparable rental is saving us over $1000.00 per month!

people looked at us like we were nuts giving up our " tax deductions" when we sold and moved into this rental-but we are taking the same amount we would have put out on the tax deductable items and diverting it from dh's paycheck into a deferred compensation retirement account. it lowers our taxable income the same as those deductions did, but we have the benefit of those monies being there and growing until we need them for retirement.

 

[bellarella]

As usual, I don't fit the statistics. I should be used to that by now.

According to The Motley Fool, the equity in most homeowner's homes far outweighs what they have saved.

That certainly isn't true for us. We are both in our early 40s and our savings are nearly double our home equity. Plus, our savings are growing much faster than our home equity so that gap will only widen over time.

How about everyone else?

This shouldn't be a surprising statistic at all, considering the recent housing bull market. If you have lived in a "hot" market, you could easily have seen 6 digit gains in your home in a short period of time. That is a hard savings rate to beat. DH and I were fortunate to have bought into a market like that. We also sold before the bubble burst and left that part of the country so our paper profit became real profit.

As for the comfort of equity in a home, I don't get much from it. Equity derived from paying down your mortgage is just your own money that is locked up and not working for you (other than saving you interest payments, which if you had refinanced when they were around 5% would be covered by a HYSA right now), and equity due to market conditions, while "good" equity, is very volitile right now.

I always look at my home as a functional purchase, not an investment.

 

[disneysteve]

As for the comfort of equity in a home, I don't get much from it. Equity derived from paying down your mortgage is just your own money that is locked up and not working for you (other than saving you interest payments, which if you had refinanced when they were around 5% would be covered by a HYSA right now), and equity due to market conditions, while "good" equity, is very volitile right now.

I always look at my home as a functional purchase, not an investment.

I agree. I understood the psychological feeling of being debt free, but when my investments are earning 10 or 12 or 15%, I see no reason to pour money into paying off my under 6% mortgage.

 

[Kellydelly]

Are you counting your 401Ks and IRAs or other investments as your "savings" or are we talking about a savings account at the bank vs your home's equity? I'm a little confused about which you are referring to .

 

[barkley]

i think of "savings" as monies that i have set aside-some are liquid and i can get to them now, some are retirement funds i would pay heavily to pull out from. dh and i also bought life insurance policies years ago (when we were young and low risk) that now have farily substantial cash surrender values-i see them as savings, because while the kids are young should something happen to one or the other of us there would be funds available-once the kids are raised we may opt to cash them out.

one form of "savings" we have is an old retirement fund at dh's former employer-he was vested at the time he left and we could have drawn it out and rolled it into a higher yeilding investment, but given that by leaving it there he will be eligible to life-time health insurance for us upon his "retirement" (at the then current active employee cost)-it's a better "investment" than the difference in interest.

 

[disneysteve]

Are you counting your 401Ks and IRAs or other investments as your "savings" or are we talking about a savings account at the bank vs your home's equity? I'm a little confused about which you are referring to .

I count everything - checking, savings, money market, bonds, stocks, mutual funds, IRAs, 529, etc. It is all savings in my book.

 

[ClarabelleCowFan]

We have a considerable amount of equity in our home, not a dime of unsecured debt but not very much at all in savings.

 

[MrsPete]

My home is paid-for, but it's not an expensive house. It's a nice middle-class place -- the type that two-professional families usually "trade up" for an expensive mini-mansion.

Between 401Ks, stocks, and plain old savings, we have about four times the value of our house in savings.

 

[mickeyfan2]

Our savings are more than our home is worth.

 

[mickeyfan2]

And we all know what happens when housing values soar....property taxes soar, and insurance costs rise.

This is not true everywhere. In the county I live in the houses value is not used to calculate property taxes. They use the value of a house at a specific year for the entire country and that is the number that is used. They can alter the mil rate but not the value. Last year our property taxes only increased about $150. Now our insurance will go up.

 

[MemoryMakers2669]

We live in Northern VA, where the housing market is out of control...so our equity is HUGE, in a very short amount of time.

 

[punkin]

My house doubled in price over the past 3 years since I bought it. I could never match that in savings. However, with the current real estate boom slowing down, I anticipate parity to be reached in the next 5 years (barring a stock market crash).

 

[NCRedding]

We do not live in a hot housing market; there has been steady, but not spectacular growth in our area. Because we choose to live in a fairly moderately priced home, our savings (including our Simple IRAs, and our DD's college fund) is much greater than the value (and the equity) of our home.

 

[barkley]

the homes we recently moved from (sold) increased in value over 400-500K in under 7 years, but in just the last 2 months those same houses are selling (more like sitting unsold) for as much as 80K less than they were in the preceding months. the value of a home is only worth what someone will pay for it.

 

[disneysteve]

We do not live in a hot housing market; there has been steady, but not spectacular growth in our area. Because we choose to live in a fairly moderately priced home, our savings (including our Simple IRAs, and our DD's college fund) is much greater than the value (and the equity) of our home.

This is our situation. We've been in our home since 1994 and it is only worth just over double what we paid for it back then. Prices haven't skyrocketed here in southern NJ like they have so many other places.

 

[katerkat]

We don't own, but our savings for a down payment are about 1/2 of our total savings/investments. We plan on buying the next time the military moves us (unless it's overseas!) and want to have a significant downpayment by then.