One dream realized, one deferred: A fable of two couples

    Bob and Carol and Ted and Alice -- okay, not very original, I admit -- are two couples who live in the same neighborhood in the suburbs of New York, but their story could be told in any nice, stable community in the northern U.S.  In many regards, their lives have followed a similar track over the 20 years they have lived in the Leafy Glen section of the town of Stabler.  They chose Leafy Glen for the excellent local school system for their children, now all out of the nest; they worked hard to pay off their mortgages early; joined the local country club; and talked often about the day their financial obligations to their children and their jobs would be over and they could head for warmer climates to spend their retirement years.
    Although they had seen recessions come and go during their time in Stabler -- that one in the early 1990s was especially scary -- the severity of the recession they began to feel around 2007 and its timing for their plans knocked them back.  Their stock portfolio losses were similar -- Bob and Ted belonged to the same stock trading club and often coordinated their buys -- and since the couples' homes were next door to each other and of essentially the same size and style, their real estate "paper" losses were the same, about 25% in the last three years.  If there was any silver lining, it was that their homes had more than doubled in value over the 15 years before 2007 (although one couple would factor their home equity into their thinking, the other would not).
    But Bob and Carol were quite upset about the market collapse, emotional actually, and at backyard barbecues they lamented the timing of it all.  "If only we had sold two years ago," they'd complain, "when others sold their homes."  They swore they would not sell for any price lower than what their neighbors had received 18 months ago.  They would wait to recoup most of the 25% value they had lost.  Ted and Alice, certainly upset about their own losses, took a more fatalistic and analytical approach.  Stuff happens, they commiserated with each other, and it was better to think like a financial analyst at times like these.  They had a plan to retire and relocate by 2010, and rather than throw up their hands and wait for a full market rebound that could take some years, they went about the work of figuring out how they could execute their plan to buy a home in the southern U.S.
    Ted and Alice broke things down into their logical components.  The first was lifestyle.  They were tired of winters, tired of paying for two-week trips to somewhere warm in order to play golf and lie on a beach in January.  Although they loved their town of Stabler, they were tired of the traffic and some of the other stress-inducing aspects of life in a densely populated area.  Long ago, they had decided the last third of their lives would be more meaningfully lived in a community that supported a more casual lifestyle.  
    Second, of course, was their real concern about whether they could afford to move.  With a little research and some advice from real estate professionals and their accountant, they came to understand they not only could afford a relocation, but also that the move to their chosen town in North Carolina would result in a cost of living decrease of nearly 21%, a consequence of lower overall taxation, especially property taxes, lower real estate costs, and lower costs for transportation, food, clothing, health care and utilities.  And because, with the kids gone, they could reduce the total size of the house they needed, from nearly 4,000 square feet to under 3,000 (they still needed room for when the kids visited), they would pay about $150,000 less in North Carolina than what they would get for their primary home in the current market.  Given the equity in the home they had owned for 20 years, they could pay for the new home in cash and have something left over.
    Although they would sell their home for less than they would have expected just a few years ago, they would buy the house in North Carolina for less than it was worth in 2007.  And, Ted and Alice figured, when the market did turn around -- it always does -- their new home in North Carolina would appreciate faster than their former home in Stabler because of the pent-up demand by baby boomers to move south.  They wanted to be sure to catch the leading edge of the wave, before prices in the south escalated.  
    Ted and Alice made their move in 2010.  As for Bob and Carol, Ted and Alice welcomed them for visits at their new home in North Carolina and encouraged them to sell their house and join them.  After a few years, Bob and Carol came to realize that the life they had envisioned for themselves -- including year round golf -- could not be put off any longer.  By the time they sold their home, it had appreciated slightly in price from its market value in 2010, but homes in Ted and Alice's North Carolina neighborhood had appreciated much more.  Bob and Carol settled for a home considerably smaller than their friends', a few miles away.

    A comment in the Wall Street Journal's Sunday pages, which are syndicated in newspapers across the country -- I read mine in the Hartford Courant -- carried a fundamentally important comment today.  A financial adviser said of those trying to recoup their stock market losses of the past year, "What's important...is recognizing where you are right now and not trying to think about where you were in 2007."  That should be as true of how we view the market value of our homes as it is the value of our portfolios.

    If you would like another opinion as you think through your own plans, please contact me.