It’s All in the Numbers
Many people find it difficult to understand why we would want to move to France when I retire. After all, the United States is known for its abundance of opportunities and resources and certainly, California, the state where we live, has a huge variety of landscapes and areas from which to choose. We can easily drive to the beach, the mountains, the desert, and one of the most popular national parks, Yosemite. Whatever you’re in the mood for is just at your fingertips. Why would we want to leave all that behind? What could possibly be better?
Well, any major life-changing decision like this is purely personal and really depends one’s particular situation and point of view. So let me describe our perspective and experience. We live in the second fastest-moving housing market in the U.S. In the 10 years we have been here, we have seen housing prices fluctuate like crazy and rents skyrocket. When we moved here in 2005, we rented a 1000 sq. ft. two bedroom, two bath apartment for $1600 a month — twice the price of the mortgage on the much larger house with a pool we were in the process of selling in Southern California. We were prepared for that. We knew well that life in the Silicon Valley (home of Google, Apple, Facebook, and just about every other tech giant you can name) would be much more expensive than our previous location, but would also offer us much more in terms of income, opportunities, culture so it was worth the investment.
We were hoping to buy another home, our first together actually, but the prospects seemed nil. We used to take walks through the very community where we now live right across the street from our original apartment. At the time, the townhouses here like the one we currently own were selling for about $950,000. When the economy began to decline in 2007, the rent on our apartment increased to the cost of a mortgage payment and we knew it was time to buy. Housing prices had dropped and we were able to purchase our 1400 sq. ft. townhouse for $517,000. Yes, that’s right, we bought the very same townhouse that was selling two years earlier for almost $1 mil for “only” half a mil, which is still ridiculous. I’m a teacher for heaven’s sake not some high tech entrepreneur. Over the next few years as the economy worsened, the value of our home fell to around $360,000. Many of our neighbors who were upside-down in their mortgages and couldn’t afford to wait it out, just walked away from their homes and left them to the bank.
Since I still had several years to work before retirement, we had hope that things would eventually turn around again and just this past year that began to happen. Our townhouse is now officially valued at $570,000 but we could sell it for much more. In fact, we have seen many homes in our neighborhood sell to cash buyers during a single weekend open house usually for many thousands over the asking price. The upswing in the economy driven by the expansion of all the high tech companies in the area seems to be having its positive-negative impact on the market as usual. The upside, of course, is that you can sell your home for quite a profit, but, if you do, where will you be able to afford to live? The downside is that property taxes in the U.S. are based on the current value of your house not your purchase price. While you may have a fixed monthly mortgage payment that you can afford as we do, your taxes can keep rising as they did last year resulting in an increase of $500 a month on top of our mortgage payment. This is why many people who have paid off their mortgages can’t afford to stay in their homes once they retire on a fixed income. They simply can’t afford to pay the taxes.
Currently in the Silicon Valley, even the middle class is being squeezed out of the housing market. Dual income couples with professional jobs can barely manage to live here never mind people earning much less. Since 2010, rents have increased 50% with the average rent for a two bed, two bath apartment starting at $2500-2800. Our old apartment now rents for over $3000 a month. Landlords are typically asking prospective tenants to show proof of annual income that is triple the rent. So, in order to rent one of those $2500 apartments (if you can find one), you would have to have $90,000 in yearly income. Our son recently moved to San Francisco after getting a job with Apple. He was lucky to find and be able to rent a tiny room in the City for $1400 a month.
What does all this mean for us? We love the home we have created for ourselves over the past 8 years. It was pretty great to start with, but Norman has done so much work to make it even more amazing and enjoyable for us. We would really like to keep it once I retire, but truly that’s not practical. I am fortunate that I will be able to finish my career in a place where I earn one of the highest teacher salaries in the U.S. upon which my retirement income will be based. We could pay the mortgage and maybe even the rising taxes for a while, but we wouldn’t be able to do much of anything else. As Norman likes to put it, we would be “house poor”. The reality is… we will need to move. We are relieved that, assuming things stay more or less the same, we will be able to sell our home in a couple of years for a good price, recoup our 50% down, and reap a little profit on top of that. The question is… where can we take our money and make the most of it?
We have both lived many places in the United States and traveled to even more. Honestly, there is no place more appealing to us than where we live right now. So, if we are going to move, we need to look farther afield. And this leads us back to France. Why not? There we can pay cash for a detached home (ah, to have our own private walls and space once again!) and eliminate a monthly mortgage payment altogether. That’s a big win to start with. And since I grew up learning the lesson that “home is where you hang your hat”, I know we can make a new home “ours” once more. It’s not just the numbers pushing us in that direction, but the French lifestyle and culture as well that appeal to us so much. I’m certain there will always be things we will miss and other things that will drive us crazy, but we think the trade-off for financial peace of mind and a simpler life will be well worth it.
Obviously, we still have much research and planning ahead of us, but we enjoy that challenge and are not daunted by the amount of work it may take to achieve our goal. Only time will tell, as they say, but we’re going to give it a good shot.