McMansions can derail your retirement plans

Amidst concerns baby boomers will have difficulty selling their homes, here is a suggestion that buying a McMansion can derail retirement plans:

We occasionally hear about a friend who somehow saved up enough money, or just decided to chuck it, and walks off to retire at age 60, 55 or even 50. It can be done.

Also, some people live in a McMansion, drive a Tesla, and vacation in the south of France. But we know it’s a very expensive lifestyle. And we know we all can’t afford it, as the real estate bust of the 2000s so cruelly reminded us. We need to appreciate that, like buying a McMansion, taking early retirement is a very expensive proposition. Yes, a fortunate few can afford it. But most of us just have to get real.

Two things are interesting here. The first is that purchasing a McMansion seriously hampers retirement plans. Purchasing one uses up a lot of money and saddles the owner with a large mortgage (plus the home might be underwater and it can cost a lot to fill such a large home). A more prudent investor would purchase a more modest home rather than splurging on a McMansion.

The second interesting part of this is the comparison to owning a Tesla or vacationing in France, both relatively rare things. For example, Teslas start around $70,000 and only about 22,500 were sold in 2013. In the 2000s, it was common to see McMansion purchases compared to SUVs, a mass production item that cost much less than a Tesla. The implication then is that McMansions are even rarer today, making it even more of a folly to own one.

Americans like homeownership – but some really dislike the process of obtaining a mortgage

Recent data suggests numerous Americans don’t like the process of getting a mortgage:

To be fair, a little more than half the 1,000 people polled this fall found the buying-lending experience rather simple and easy to navigate. But nearly 1 in 4 said they would rather gain 10 pounds, and almost 1 in 8 would rather spend 24 hours with the person they dislike the most.If you think that’s bad, 7% would rather have a root canal, and almost that many would choose a night in prison over going through the mortgage process again.

Asked another way — “Which of the following makes you extremely uneasy or anxious” — obtaining financing again scored very low in the Guaranteed Rate study. In fact, more people were more comfortable with public speaking, being in high places, flying in an airplane, being around snakes and being in a confined space than they were going through the mortgage process.

This flies in the face of the latest J.D. Power mortgage origination satisfaction study, which found that more borrowers were pleased with their lenders now than at any time in the last seven years.

Overall customer satisfaction improved for the third consecutive year. But as you might expect, first-time buyers who have never had to navigate the system weren’t as tickled as repeat buyers and refinancers.

I remember a whole mess of paperwork though the actual numbers and costs didn’t seem too complicated. Several pieces of this process might lower people’s satisfaction:

1. The idea that someone knows all of your financial information. Americans are pretty guarded about their incomes (try bringing it up even vaguely in social settings) so even though the bank needs all of this information, it makes people nervous.

2. The purchase of a home will be the biggest single investment many people make so it induces nervousness about being tied down and having to make monthly payments for the next (usually) 30 years. Perhaps this kind of investment should make people nervous…

3. First-time homeowners are not well educated about what it takes to purchase a home, even if they have a strong idea that they should purchase a home. For example, HGTV shows the mortgage process isn’t much of anything at all: you go from liking a home, making an offer, to living happily ever after in the home. Granted, getting the mortgage and working out the details is not exciting television but there is little information about mortgages conveyed by these shows.

It is too bad the article doesn’t discuss the characteristics of those who disliked the mortgage process more. Could it be disproportionately lower-income residents who don’t have that much money to spare? Could it be younger adults who are used to processes going quicker?