Honey, How Can It Hurt Just To Take a Look?

How Can it Hurt?

That house is EXACTLY what you've always wanted. Why not at least go look at it?


You've been responsible, paying down (or off) your debt. You've gone frugal for several years now and, well, you're finally able to think about a housing upgrade. Maybe it's the kiddo count, maybe it's the school district, maybe it's just that it would be nice if you could turn around in your kitchen without pulling in your tummy every time.

Or, you just want another place, no reason offered. Just because.

So… why haven't you done it yet?


Have you been waiting for prices to go up, so you can get a good price for your current home?

Of course! Isn't it best to make as much as you can before you move on? Or up?

If that's your thinking, you might be revving up your happy motor. Home prices, it seems, are finally in a sustained recovery. The New York Times thinks so.  And DataQuick, a national real estate data tracking website, concurs:

Home Sales and Prices

                                                          Recovering Home Prices (source: DataQuick)

So… should you be excited? Should you turn on your radar and begin scouting out candidates? On your next Home Depot excursion, do you dare linger in the kitchen cabinet section? Is it time to stop throwing away those catalogs with the nice cabinets and furniture?

Believe it or not, this is easy to figure out, but the answer may surprise you.

Let's see, shall we?

The Facts

The math is simple. Let's say you look around and find:

  • $250,000 is your current home value (your “now house”)
  • $350,000 is the price of the house you're eying (your “new house”)

(The principle is the same, regardless of the actual numbers, so don't worry if these are not your exact numbers.)

At the bottom of the recession, the prices for both houses were lower than what they are now. The chart above tells us home prices are not as depressed as they were a few years ago.

For the sake of argument, let's say your “now house” was worth, say 10% less than today at the bottom of the recession. The house you are eying (the “new house”) was also worth 10% less than today, not an unreasonable assumption. So, at the bottom of the recession

  • $225,000 was the value of your now house
  • $315,000 was the value of the new house

To complete the picture, let's say in a few years, when the market hits its new peak (as it always does) your house will be worth $325,000, which is 30% more than today. (Again, actual numbers don't matter – the principle holds true, no matter which actual numbers you use.)

Here's the table which summarizes our scenario:

Pricing Scenario

Now and Then – What you pay for the Upgrade

So, if you upgrade at the bottom of the recession, you will pay $90,000 more. If you sell the same house and buy the same new house, you will be paying $130,000. These are the numbers in blue.

Same house sold, same house bought. Very different dollar amount you pay. The only difference is the date.

What's the key, then, to saving $40,000 in the example above?

The best time to upgrade is when it feels the least like it: the bottom of a recession.

If you wait the price of your house to go up, and if you catch the market at or even near its peak, you may feel very pleased with yourself, but you will have overpaid for the upgrade in this example by $40,000. Your amount might vary, but the principle stays the same – waiting doesn't pay.

This is simple, but not intuitive. None of us like to sell our house for way less than what we think we can eventually get for it.

But going by feelings could cost you real money and set you back in your quest to get your drop dead money as quickly as possible.

Here's how I think of it: at the bottom of the recession the people selling their house to you are losing more than you are losing on the sale of your house.

The Big Picture

All of us chase a single financial dream, one which we call Drop Dead Money. Simply put, it's enough money to tell everyone to drop dead – just a fun term for financial independence.

There are two key issues we all look at as we chase that dream of ours. The first is “how much?” Different people have different numbers. Jamie Dimon has hundreds of millions of dollars and it's still not enough for him. Someone else has $200,000 and that's more than enough for them. We all have a different number.

The second issue is: how long it will take to reach that number? When we do, we have the freedom to do whatever our hearts desire.

Drop Dead Money is measured in dollars, not percentages. And, as you can see from this example, the “when” of financial decisions can have a significant, even dramatic impact on how long it will take you to get to your number.

In this example, going against the grain of what “feels” right can put $40,000 toward your Drop Dead Money goal. This is not money you have to work for – this is money you get by letting the economy work for you.

Know the times and the seasons. And know when to do what.

Crystal's Comments:  I loved this breakdown…I like anything that shows that I am not being a complete idiot by buying a new house right now, hahaha.  But we are renting, not selling, our current home, so I am probably not a comparable example. ANd we're not even including things like home renters insurance in this cost breakdown.  BUT, cool analysis no matter what.

35 thoughts on “Honey, How Can It Hurt Just To Take a Look?”

  1. mycanuckbuck

    Take 2- first comment didn’t work. First line sounds like my hubby – oh come on – it’s only twice our budget – let’s have a look!

  2. William Cowie

    LOL – yep, that’s almost as bad as “what could possibly go wrong?” – right?

  3. I really need to come up with some big goals like a drop dead money number as well as a retirement number. I should make a list then take a financial get things done day off.

  4. Gillian @ Money After Graduation

    Very interesting to see that it pays to upgrade during the recession. Thanks for the info!

  5. William Cowie

    Actually, Lance, your drop dead money and retirement number are the same thing. It’s just an expression my wife and I took from a book by James Clavell (Tai-pan) a few years ago.

    From what you’ve already said, it sounds like you’re well on your way! 🙂

    (By the way, I liked your credit score deconstructed post – well done!)

  6. William Cowie

    Thanks, Gillian.

    The other side is also true: if someone, like an empty nester, wanted to trade down, the best time for that would be at the top of the market, when the difference between the two houses is at its greatest. That gives you the maximum equity to transfer to the new (smaller) house.

    That’s what my wife and I (fuddy duddies, the two of us) are waiting for… 🙂

  7. Ornella @ Moneylicious

    My parents found it best to sell their home at the peak and downside to make the most of the equity that was built..since they were empty nesters.

    Love the analysis…buy now and upgrade during the recession!

  8. Mrs PoP

    I love this analysis – it reminds me of a great author who actually writes books on how irrational we are – Dan Ariely. I think his first book was Predictably Irrational and he has a new one I just requested from the library on cheating behaviors. The books are worth checking out if you’re interested in why you are occasionally your own worst enemy.

  9. Deonne Kahler


    Excellent breakdown of what to do and *not* to do. (And when.) I bought and sold well in early 2005, then bought a new house under my budget and am happily here for the duration.

    I could have bought a bigger, nicer house but had a mortgage “I could afford.” Ha. Instead I paid cash for this lovely, comfortable, big enough house, and having no mortgage changed my life. It’s pure freedom.

    But if I ever do decide to get a new house, I’ll take your advice and buy during a recession! Thanks for the post.


  10. William Cowie

    Thanks, Ornella – smart girl! 🙂

  11. William Cowie

    Thanks for that insight, Mrs. Pop. I went and googled Dan Ariely and now I’m interested to know more. I’m going to see if our library has Predictably Irrational tonight.

    There have been other people who have spotlighted our human tendency to not always be rational in our decision making.

    And, make no mistake, it is not an easy fight. When you sit down to dinner and everyone is gushing on about how much they’ve made flipping houses, it takes an awful lot of self control to not get up and call a realtor to join the game.

    And that’s really what Drop Dead Money is all about. The “what” is very easy. Just don’t buy when everyone else does. The execution takes a little coaching to pull it off.

    Thanks for the info!

  12. William Cowie

    Hey Deonne, buying under your budget is an almost fail-safe strategy. I read the other day about what percentage of our income we spend on different things. For almost all categories like food, clothing, etc., those percentages have gone down in the past 100 years or so.

    Except for housing – that has risen significantly. And the reason for that is clearly visible when you look at what people bought then and now. The classic example is Levittown – after WW2, they couldn’t build those homes fast enough. They were so popular the builder got featured on the cover of Time magazine. Yet hose houses were just over 900 square feet, with one bathroom, no basement, no air and no garage.

    Do we need all the square feet and features we buy? It’s money we pay. If we can do with less, that’s money in our pocket. Drop dead money. 🙂

    Now that you’re all settled, maybe you might consider buying a neighboring house in the next (inevitable) recession as a rental…

  13. Jacob @ iheartbudgets

    We bought on the way down, and we’re actually under a bit right now. But since we’re there for another 7 years minimum, I think we’ll be ok. If we outgrow our house, based on the above chart, we will be at a disadvantage if we sell and buy up at the top of the market.

    Do you think we should wait for another crash?

  14. William @ Drop Dead Money

    Absolutely! If you look at this chart
    you will see we’ve had a recession every 7-10 years in our lifetime, and we’re already 3 years past the last bottom.

    So you won’t have that long to wait. Which to some is bad news, but to those who are prepared it’s good news. 🙂

  15. John

    We’re not going to buy a house at this point. The one we currently own is already just a tad more than we can afford (we bought it before we got money-smart). We’re thinking we’ll sell the small little house we’re living in now in about 5 years . . . hopefully the housing market is where it needs to be by that time! Thanks for the article!

  16. William @ Drop Dead Money

    …or you can keep it as a rental and start saving for the house you buy in the next recession. 🙂

    (If you think landlording will suit you. It can be lucrative, but you have to like it.)

  17. Manette @ Barbara Friedberg Personal Finance

    Great analysis! After reading this post, I felt better. I realized that we really made a good decision not to sell our house but have it rented out instead. Thanks for the information!

  18. Carol Gyzander

    Hi William,

    Hmm, so based on the 7-10 year cycle you mention for recessions, what general timing advice would you suggest for the empty nester looking to downsize?

    Thanks for the interesting info!


  19. William @ Drop Dead Money

    Carol, it’s hard to say ahead of time. That’s why it’s important to stay up on the economy. One of the things we do on our website is publish a quarterly report on the economy in plain English, so people can judge for themselves.

    This particular economic cycle is not like any other we’ve experienced in our lifetime. There are several positive indicators, but not much strength behind them. That leads several experts to say we’re headed for a premature recession next year.

    I’m not convinced. I’m also not always right, which is why I like to present other people’s opinions too. But my wife and I are looking to downsize too. We believe house prices are not done rising yet. Yes, there’s an immense overhang of what they call shadow inventory which might keep prices low, but at some point the cycle will run its course and the down will be followed by an up. We’re ahead of the game, so we can sell when we want to. But we’re waiting to see if it gets any better.

    Long answer to say: I don’t know exactly. How about “a few years?” 🙂

  20. Carol Gyzander

    Hi again William,

    Thanks for your quick reply! We are starting the process of doing all the fix-up stuff that you need to do, in order to make a good sale after living in the house for 15 years. So, we’ll be ready.

    I just zipped over to your site and signed up for your info – am looking forward to hearing more!


  21. Nurse Frugal

    That’s definitely a tough one. I feel like once we pay our mortgage off next year, we will never EVER want to have debt again! That’s a tough decision that you face when trying to “leverage” any property.

  22. Savvy Scot

    Really like this way of looking at it! Good Post 🙂

  23. William @ Drop Dead Money

    Hi Carol – thanks! Good luck with your house plans! 🙂

  24. William @ Drop Dead Money

    Nurse Frugal – what’s wrong with just staying in the house you paid off? If you halfway like it, it’s by far the best option. Trading houses is one of the most expensive assets trades of all. Not only the commissions and other selling costs, you’ll also have the invisible costs of having to dispose of things that don’t fit the new place, and then getting other things that do.

    Warren Buffett says his stock investment strategy is “buy and hold.” I think it’s the best real estate strategy, too.

    But if, for any reason, you’re compelled to trade up, the recession is the time to do it. And if you want to trade down, then the best strategy is to hold out for the best price.

  25. Leslie

    Love the breakdown. We have been doing a lot of upgrading in my home…nothing outlandish, just stuff that needs to be done and are all things that will increase the value as these are the same things that decreased the value when we bought it. I love the first line, sounds like my man. I don’t look if I don’t have any intentions in buying…keeps my budget safe!

  26. William @ Drop Dead Money

    You’re Leslie – improvements and additions are timeless – they always add value.

    And the sooner you do them, the more you get to enjoy them. I remember when we sold the first house we ever bought, we really improved it for the sale. And then we told ourselves: why did we wait? We could have enjoyed all these improvements, instead of leaving them for the buyer!

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