The Boston Commute - how much is convenience worth? A comparison of commute time versus home prices

In this housing recovery cycle, I remain amazed at how much millennials are willing to pay for convenience.   I wonder if they realize the costs and their options.   I have blogged at length about our housing project in Pelham NH, Skyview Estates, and how it fits into the larger greater Boston real estate market.

I was curious to take another look at price vs convenience.  For someone living in or near the city, they may think that Southern NH is a world away.   But that's simply not the case as you can see in this infographic.   For the last 50 years, the typical pattern is for 30 somethings to move out of 

the city, come north of the border to enjoy all the benefits of New Hampshire living, and still excel in their chosen professions.   

Are you willing to drive another 30 minutes to save half a million dollars?   Or 10 minutes to save $300k?

Food for thought.   Comments most welcome.

(This data was collected on Google maps simultaneously at 8am using the same end point in Cambridge, MA and various start points for the commute.  Thus traffic was taken into account.   Home pricing was taken from available listings on Zillow.  Note - there was very little comparable inventory in Massachusetts to even analyze).

Relocating to the Boston area? See why you should check out Southern New Hampshire.

Are you relocating to the Boston area and trying to decide which community to settle in?   You owe it to yourself to check out Southern NH especially if you are working in Boston/Cambridge North (Burlington, Bedford, Andover, Lowell and surrounding communities).

The price of homes in the immediate Boston area has skyrocketed– making affordability a real challenge.    You can buy a home on the Mass border in NH for hundreds of thousands of dollars less than an equivalent home in Massachusetts.   And you get all the advantages of living in NH!        

Check out these blog posts and compare for yourself:

Top 20 Reasons to Live in NH

Can you save half a million dollarsby living in NH?

The rightsizing equation

Buying new construction versus resale.

Are you afraid to buy a house?   How about increasing your retirement yearsby 50%?

If you like the NH story, come check out our development at Skyview.   You’ll be amazed how close we are to Boston and local amenities and yet how stunning our hill top setting is.  

Should you buy new construction or a resale home?

Think back 10 years ago to 2005.   Did you have a smart phone?   The first iphone wasn't released for another two years in June 2007!  

Just as consumer technology has transformed over the past decade, so too has home building technology.   Today’s homes are much more energy efficient due to both stricter ‘green’ building codes and advances in energy efficient insulation, windows and other building materials.   And the major components that make up a home – furnaces, appliances, air conditioners, and are also more efficient and reliable.

Just take a look at this new home at Skyview in New Hampshire?   This picture was taken in February 2015 (what a Winter, right?!)

 after a month of record snows.   Can you spot any icicles on the roof?  No? That’s because these homes are so energy efficient that you don’t have the melting/freezing cycle that occurs in an older home when heat escapes up through the roof and joints.  Compare it to this picture taken on the same day of an older home.

 The housing crisis started in 2006 which means that until just recently, home construction was effectively at a stand still.   So, if you’re looking to buy a home today, chances are most resales will be 10 years old or older just due to the fact that not many homes have been built since the great recession.   While these homes may have been renovated to look new, the ‘bones’ are still a certain age which means more maintenance and a less energy efficient home.   Are you up for the maintenance headaches, expenses and cost of ownership of less efficient home?

If not, you may be thinking about new construction.    Here is an excerpt from www.Forbes.com on the advantages of new construction:

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According to Trulia’s latest survey, twice as many people prefer new homes to existing homes.  “New” means exactly that: brand new properties that have never been lived in before, or homes purchased in the pre-construction phase. On the flip side, “existing” or resale homes are pre-owned properties, most of which were built between the 1920s and the 1970s. For the same price, 2 in 5 Americans – a sizeable 41% of the population – either somewhat or strongly prefer a newly-built home over an existing one.

While shiny and new sounds nice in theory, what’s actually behind the allure of these properties?  Let’s dive into the advantage and disadvantages:

The Pros

·         You’re able to have the builder customize the home before construction is completed, so it will be built with your personal touch and painted in your color palette – a big bonus!

·         With new construction or pre-construction purchases, the work is done for you. You don’t have to lift a finger, a paint brush, or a hammer.

·         New homes come with some of the design elements that today’s lifestyle demands: open, eat-in kitchens, walk-in closets, and large master baths to name a few.

·         A big financial benefit of new properties is that you won’t have to do much maintenance. With brand new appliances, plumbing, heating, and air, you should be repair free for at least a few years.

·         Utilizing new construction materials, just-built homes are usually more energy efficient; that means potentially lower utility bills.

·         New homes and condos are often equipped with the latest technology built right in – think alarm systems, speaker systems, Internet wiring, and cable – saving you lots of time, money, and holes in the walls.

·         You’re moving into a house that should be totally complete and absolutely perfect. That “new house smell” is definitely a luxury!

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There are downsides to new construction.   Some of the biggest concerns cited include:

-       Cookie cutter subdivisions,  Lack of architectural detail and craftsmanship, Postage stamp, small lots, Concern about the builder reputation,  Don’t want to be the ‘first one’ in the subdivision, Lack of custom options

All valid points.   But at Skyview, we like to think we offer the best of new construction.   We have all the advantages of maintenance free, energy efficient, well designed homes.   Plus, we are an established subdivision with beautiful lots, varied home designs with craftsman flair and a long list of satisfied home buyers who will attest to our reputation as builders.   

When making your decision between resale or new construction you owe it to yourself to come by and check out Skyview.   And don't rush into a resale just because it's there.  A new home can be ready in a few months.  Don't settle for anything less than your easy to maintain, efficient dream home.

Are your in-laws or parents thinking about relocating to be near the grandkids?

Do your kids wish their grandparents lived nearby?

Are your in-laws or parents thinking about relocating to be near the grandkids?  

Over the past 10 years, my wife and I have noticed a tendency of parents of our peers to move to NH to be closer to their adult children and grandchildren.

Does this sound like you?    You’re married, with a couple of young kids, living in the Boston area, you and your spouse have successful careers.  Birthdays and holidays often involve a plane ride or a long drive to see extended family.

And does this sound like your in-laws or parents?   Successful in their own right, retired or semi-retired, but definitely not ‘old’, shifting priorities, a desire to be near the grandkids to share their love and wisdom. Maybe on a recent visit the idea came up, ‘How would you guys feel if we moved closer to your family so we could see the grandkids more often?’  You and your spouse thought about it and decided that, actually, it would be great to have family around.  

So what now?

As I looked back over the blogs I’ve been writing this year, there is a storyline that speaks to your situation.   Here are some themes that might help you and your parents (or in laws) figure out the next steps.

1)      Savinghalf a million dollars by moving to New Hampshire.   This blog looks at real estate prices and cost of ownership as a function of distance from downtown Boston.   The bottom line is that Southern NH is a great solution to get the most house for the dollar while still being a convenient distance to Boston.   And, it may provide just enough separation so that you and the grandparents are close but not too close.

2)      Top20 Reasons to live in New Hampshire.   This is pretty self-explanatory but one thing that jumps is the tax structure, particularly for retirees with some consulting income and significant capital gains.  New Hampshire is a no-brainer versus Massachusetts.

3)      Rightsizingyour home.   This blog talks to the advantages and economics of buying a house that fits your current lifestyle.   It can be extremely freeing to finally let go of that huge house and get into something new and more manageable.    And it can also free up equity and cash flow to finally splurge on those trips and experiences your parents have been talking about for so long.

4)      Top 5 reasons an over 55 community may not be right for you.   Your parents may be over 55 but they aren’t ‘old’.   And the last thing they want is to be surrounded by a monoculture in an adult community.   Our subdivision, Skyview Estates in Pelham, NH provides many of the advantages your parents would be looking for – luxurious single story living, smaller lots, gorgeous views, and other community benefits while still being an unrestricted, diverse neighborhood. 

Top 5 reasons an over 55 community may not be right for you

Over 55 communities are a great solution for many retirees but they are not for everyone.  In this blog post, we take a look at the top 5 reasons an over 55 development may not be right for you.

1. Variety (of ages) is still the spice of life.  According to Deborah Diane, Baby Boomer Retirement blogger, “some people like living in a community where there are mixed ages.  They enjoy seeing children in their neighborhood, as well as young couples who are just starting out.”    There is a vitality that comes with a diverse neighborhood.  For some, living among “Seniors only” just doesn’t feel right.
2. Kids and grandkids not welcome.   Many adult communities have strict covenants particularly on grandchildren.   For some families, it may be a necessity to have grown children and/or grandchildren live with them for an extended time.  Who can predict life’s turns – sickness, divorce, unemployment?  And what greater joy is there than for a grandparent to spend time with their grandkids and help nurture them into successful adults?   In our case, my wife and I made a conscious decision to settle close to our parents, so that our children could enjoy the influence of their grandparent’s love and wisdom.
3. High fees.  Many over 55 communities have great amenities – golf, swimming, tennis, clubhouses – but these all cost money.   It is not uncommon to pay hundreds of dollars per month in fees.  Do you really want to be paying for a community pool that you seldom, if ever, use?  It’s important to evaluate how much those amenities mean to you and whether you want the long term liability of maintenance and capital improvements.
4. Cookie-cutter homes on postage stamp lots.   You’ve worked long and hard to reach this point in life and achieve success.   Sure it makes sense to rightsize, (see my blog post on rightsizing your home for a happylife), but do you really want to be living in a row of identical homes where you can reach out the window and touch your neighbor?    There are many well designed adult developments, but there is something to be said for the elbow room and custom home feel of an elegant single family home community.
5. Tougher resale.   Even if this is the last home you intend to buy, future resale value should still play a role in your decision making.  In an adult community, the rules and regulations imposed by the Condo Association inherently limit your market of potential buyers.  Age restrictions, pet restrictions, fencing/landscaping rules, parking, long term guest bans, etc. are all potential negatives.  Consumer's want choice and flexibility.  

At our Skyview project in Pelham, we attempt to strike the balance between the simplicity and benefits of an over 55 community while keeping fees to a minimum and offering a diverse, vibrant single-family home community in a phenomenal location.   

We offer gazebo areas with sunset views over the mountains, community gardens, open space and hiking trails.  Our lots are smaller than a conventional subdivision, averaging 0.7 acres, but large enough for privacy.    And our ranch model, The Currier, has all the convenience of luxury single story living with an open concept floor plan and the craftsmanship of a true custom home.   Here in New Hampshire we say – “Live free and thrive!”

Are you afraid to buy a house?

Recently, for the nth time, I was listening to a housing economist discuss the Millennial generation – again predicting that they will be a generation of renters.   I heard the well-worn litany of arguments: this generation witnessed their parents get burned on their homes during the recession,  Millenials don’t believe that homes are an investment, they have difficulty getting mortgages, they are forming relationships later in life, etc., etc.    I agree that in the immediate aftermath of the housing crisis, these factors were true and valid.   But these issues are temporal and rapidly fading – and certainly not a permanent condition of the Millennials.

My experience is this: young people have recovered confidence, want to own a home, can now get a mortgage and, most importantly, are smart enough to know that buying a house is a no-brainer.   I also believe they have acquired wisdom from observing their parents: they want smaller, greener, lower maintenance homes - a home that works for their lifestyles and priorities.  (see my post on rightsizing your home for a happier life) 

With the proliferation of rent-versus-buy calculators, I was curious to check the numbers for myself.   I took a look at buying a house in our project, Skyview, as compared to renting a similar home in the area.   In my analysis, I took the ‘no investment’ perspective of the young buyer and assumed zero appreciation over 15 years.   At first glance it appears that home ownership is more costly than renting -- by about $4k per year.  (check out the numbers below)   But when you compute the interest tax deduction and the equity from your mortgage principal, you save $22k per year versus renting!    Over 15 years, that’s $332,000.

Now, let's be a little bit optimistic on home appreciation.   Even taking the recent housing crisis into account, long term home price appreciation roughly matches the rate of inflation.   Three percent per year seems to be a generally accepted long term housing appreciation rate.   If you add this appreciation into the analysis, your home value increases from $429,000 to $668,000 in fifteen years.   The overall difference between buying versus renting with 3% appreciation exceeds $572,000!   So Millenials out there, consider this: if you  earn $90,000 a year, that equates to 6.4 years of working. If you value your time and life balance, 6+ years is a lot of time to sacrifice.  Even more striking, according to a recent Gallup Poll, the average retirement age is 62 and the life expectancy of someone born in 1985 is just under 75 years which equates to 13 years of retirement.   By this analysis, if you own a house for 15 years, you could potentially increase your retirement years by almost 50% from 13 to 19+ years.

So don’t be afraid to buy a house – be more afraid not to!      

    

In this analysis, I only looked at a 15 year period and did not take into account the incremental investment income that can be derived from the savings.  As you take these additional variables into account, the argument for home ownership only gets stronger.

I don’t pretend to have a crystal ball for the future.   We could have another housing crisis and homeowners may be under water again.   Or, we may high inflation due to all the government spending since 2008 and owning a house may become all the more important as a hedge.   Nobody knows and each person has to make their own decision and risk calculation.   But I know that Millennials are more intelligent than the current conventional wisdom reflects.

As always, comments and counterpoints welcome.  If you want a copy of this spreadsheet, just send me an email.   Check out Skyview

What's the right size home for you? The Rightsizing Equation

There is a significant trend toward smaller homes amongst both empty nesters and young families.    The generally used term is called downsizing--but I prefer “rightsizing.”   I’ve always been a big proponent of efficiency – sometimes to the chagrin of my wife (why cook in early December when you can make at least 7 different meals using leftover turkey?).    Our family recently moved from a 3500’ McMansion (which would be considered on the small side considering the trend of the last 20 years) to a smaller cape which we renovated  -- and  the space feels larger and better utilized. (For some great examples of this, read about architect Sarah Susanka’s concept of the “not so big house” on her website  www.notsobighouse.com.)

There are a number of hard facts that make rightsizing a compelling argument.  Empty nesters moving to a smaller home can realize the economic benefits of lower mortgage, utility, tax and maintenance expenses while at the same time not feeling enslaved to the care of feeding of a large home.    Just as importantly it improves quality of life.   Not to mention the fact that equity from the sale of the larger home can be deployed to provide incremental investment income.

For younger families, there has been a general shift in sensibilities.   Bigger is not necessarily better.    A well-appointed, efficient home that is green and consumes fewer resources are the priorities.  Just as with the older set, the young families want a home that is a component of their lives but doesn’t rule their lives.  Along with this is the renewed interest in community, common spaces and neighborhoods where people of all ages have opportunities to interact.

In this post, I wanted to explore the hard numbers around the generally accepted notion that rightsizing for empty nesters saves money.   After some consideration I decided that there are really two independent scenarios to look at:  1) the cost reduction model and 2) the investment income model.

In the cost reduction model, I looked at a comparison between the estimated costs of ownership of the 2054 sq foot “Currier” model home at our Skyview project versus a larger, 5500 sq foot home in the same area.  We see this scenario playing out each day as buyers look to move from homes within Skyview’s town of Pelham, from the Boston area, or from other affluent communities in New Hampshire.    I assumed that all other variables were consistent between the two homes and did a rough estimate of utility cost based on square footage.  The net savings by rightsizing is $33,000 per year.  

  

In the second scenario, I assumed that equity in the larger home  could be invested to produce investment income.    In this example, I assumed $400,000 of equity in the home based on the current market value less the current mortgage balance.   For capital gains tax, I assumed a 25% long term capital gains tax rate X the difference between the sales price and original purchase price.  After subtracting  sales commission and down payment for the new Currier home, more than $290,000 is left for investment.   At a 7% annual return, that equates to over $20,000 in annual investment income.   

Every situation is different.   If you’d like a copy of this spreadsheet, just send  me a quick email or connect through our Skyview website.   Regardless of your particular circumstances, rightsizing your home can make a lot sense both economically and in your quality of life.