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Make Your First Home Your Last: The Case for Not Moving Up

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Home has become work and school for millions of people. Many residences needed to somehow shift overnight to accommodate two workplaces and multiple classrooms because of the coronavirus.

With schools and businesses signaling that these conditions will extend at least through the spring, it’s no surprise there is a stampede of people seeking more space. But when so many are acting on instinct, the best move may well be to slow down and ask some counterintuitive questions.

Try this one on for size: Should the house you’re thinking of as a starter home be your forever home instead?

This is a tricky subject, like many of the biggest questions in personal finance, because of the complex stew of money and feelings that are involved.

First, the money. A home is an asset with a value that could make up a substantial proportion of your net worth. Hopefully, that value grows over time. And right now, with mortgage rates at record lows, it’s tempting to go as big as possible.

But there are other things you could do with any extra money that you might otherwise put toward a bigger or better home. That incremental amount could go into retirement savings instead, or a 529 college savings plan. Or you could give it away to people who don’t have the luxury of contemplating these sorts of trade-offs.

The case for staying small need not be some scolding ode to parsimony. A more modest home can leave more money in the budget for travel, expensive hobbies, or a getaway abode by a lake or mountain. Living smaller also helps the environment.

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Now, those emotions. Spending more for a bigger dwelling doesn’t make sense unless there is a high psychic return on the extra space. But if you’ve never lived bigger, it’s hard to predict how much happier it will make you. And how do you weigh that qualitative return against quantitative trade-offs rendered in dollar figures?

There are some facts to keep in mind.

Ever since the collapse in the housing market during the last big recession, the idea that your house is not, in fact, an investment vehicle has become common. Wise as this is, it doesn’t change the fact that a home is still an asset. And you should think hard about how any such asset might appreciate (or not) over time.

So much of any growth will depend on where you live, and too many of these kinds of conversations are framed around places like the San Francisco Bay Area, parts of Brooklyn or gentrifying areas where there have been enormous gains in property values.

Nationally, however, the numbers aren’t so steep. Data from CoreLogic’s home-price index shows that over the past 20 years, the average increase for single-family homes priced at 125 percent or more of the median home price in their region is just 3.4 percent annually. For homes at the 75 to 100 percent level, the gain has been 4.3 percent.

Consider maintenance costs, too. A newer home — say, less than five years old — might require just 1 percent of the purchase price in annual expenses, said John Bodrozic, a co-founder of HomeZada, a tool that helps owners keep track of costs and improvements. But if your home is 25 years old or more, 4 percent is a better estimate. If history is any judge, putting money into stocks over periods measured in decades should yield a better return.

Good professionals really can help determine what “return” ought to mean to you, though. Joe Chappius, a financial planner in Buffalo, suggested one basic strategy: Consult a few elders.

Find someone you trust who traded up 10 years ago, Mr. Chappius said. Very few of his clients who did so now think it was the best financial decision they ever made. More often, they have two rooms they rarely use.

A financial pro can also help you prioritize, including getting you and your spouse, if you have one, to agree on goals and dreams — and what’s worth sacrificing in the present to achieve all of the former and reach for some of the latter.

Once that baseline is set, they have specialized software that can make talking about the financial trade-offs easier. Mr. Chappius and Jeff Wolniewicz, partners in the firm Complete Wealth, walked me through their process this week using numbers that are typical for their home-seeking (or home-reaching) clients.

For any given trading-up transaction, a client might need to move $1,000 more per month to the housing budget. What might that mean right now? Perhaps it’s just a severe reduction in travel or eating out. But if money is already pretty tight, it could mean that no saving for a child’s college can even begin — and a $500 slug of monthly savings can ultimately pay for well over half of the cost of a state school.

Or trading up could require a reduction in retirement savings that might extend your time in the work force. For people who love what they do, perhaps that’s no problem. But how prepared are you to decide that now?

“We’re using the numbers to bring things back to a values-based conversation,” Mr. Wolniewicz said.

There may be a compromise solution if you’re craving more space. An addition to your home might be possible — and cheaper than a move. Ditto an interior renovation that allows for more people to be more productive without interruption.

“The thing about Covid is that it’s hopefully a short period, but it really puts a very fine point on the need for flexible spaces that can do double duty,” said Sarah Susanka, who has been preaching that gospel ever since 1998, when her book “The Not So Big House” came out. “It’s an acoustical issue.”

Danika Waddell, a financial planner in Seattle, suggested another framing question: What might you regret if you stay small?

Get granular here and think beyond the pandemic, if you possibly can.

Is your love of hospitality and large gatherings one that you would act on frequently? Hosting Sunday supper each week in a newly oversized great room can bring joy beyond measure. But maybe you’re just letting your desire to host a few holidays each year dictate your feelings about a six-figure real estate decision.

If you’re a parent, are you fine with your house not being the place where the gang gathers? (Or would you actually rather not have teenagers hooking up in the basement guest room or smoking pot in the yard?)

And when relatives come to visit, will you regret having to put them up in a hotel? Maybe not! But if you want them around for an entire season each year, for many years to come, the bigger house could make sense if you are certain.

“The people who are generally the most happy are the ones who avoid the more, more, more and understand what is enough for them,” Mr. Wolniewicz said. “That takes courage, to stand firm on what your enough is, especially if it’s in contrast to what the world says you should want more of.”

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The Trump campaign celebrated a growth record that Democrats downplayed.

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The White House celebrated economic growth numbers for the third quarter released on Thursday, even as Joseph R. Biden Jr.’s presidential campaign sought to throw cold water on the report — the last major data release leading up to the Nov. 3 election — and warned that the economic recovery was losing steam.

The economy grew at a record pace last quarter, but the upswing was a partial bounce-back after an enormous decline and left the economy smaller than it was before the pandemic. The White House took no notice of those glum caveats.

“This record economic growth is absolute validation of President Trump’s policies, which create jobs and opportunities for Americans in every corner of the country,” Mr. Trump’s re-election campaign said in a statement, highlighting a rebound of 33.1 percent at an annualized rate. Mr. Trump heralded the data on Twitter, posting that he was “so glad” that the number had come out before Election Day.

The annualized rate that the White House emphasized extrapolates growth numbers as if the current pace held up for a year, and risks overstating big swings. Because the economy’s growth has been so volatile amid the pandemic, economists have urged focusing on quarterly numbers.

Those showed a 7.4 percent gain in the third quarter. That rebound, by far the biggest since reliable statistics began after World War II, still leaves the economy short of its pre-pandemic levels. The pace of recovery has also slowed, and now coronavirus cases are rising again across much of the United States, raising the prospect of further pullback.

“The recovery is stalling out, thanks to Trump’s refusal to have a serious plan to deal with Covid or to pass a new economic relief plan for workers, small businesses and communities,” Mr. Biden’s campaign said in a release ahead of Thursday’s report. The rebound was widely expected, and the campaign characterized it as “a partial return from a catastrophic hit.”

Economists have warned that the recovery could face serious roadblocks ahead. Temporary measures meant to shore up households and businesses — including unemployment insurance supplements and forgivable loans — have run dry. Swaths of the service sector remain shut down as the virus continues to spread, and job losses that were temporary are increasingly turning permanent.

“With coronavirus infections hitting a record high in recent days and any additional fiscal stimulus unlikely to arrive until, at the earliest, the start of next year, further progress will be much slower,” Paul Ashworth, chief United States economist at Capital Economics, wrote in a note following the report.

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Black and Hispanic workers, especially women, lag in the U.S. economic recovery.

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The surge in economic output in the third quarter set a record, but the recovery isn’t reaching everyone.

Economists have long warned that aggregate statistics like gross domestic product can obscure important differences beneath the surface. In the aftermath of the last recession, for example, G.D.P. returned to its previous level in early 2011, even as poverty rates remained high and the unemployment rate for Black Americans was above 15 percent.

Aggregate statistics could be even more misleading during the current crisis. The job losses in the initial months of the pandemic disproportionately struck low-wage service workers, many of them Black and Hispanic women. Service-sector jobs have been slow to return, while school closings are keeping many parents, especially mothers, from returning to work. Nearly half a million Hispanic women have left the labor force over the last three months.

“If we’re thinking that the economy is recovering completely and uniformly, that is simply not the case,” said Michelle Holder, an economist at John Jay College in New York. “This rebound is unevenly distributed along racial and gender lines.”

The G.D.P. report released Thursday doesn’t break down the data by race, sex or income. But other sources make the disparities clear. A pair of studies by researchers at the Urban Institute released this week found that Black and Hispanic adults were more likely to have lost jobs or income since March, and were twice as likely as white adults to experience food insecurity in September.

The financial impact of the pandemic hit many of the families that were least able to afford it, even as white-collar workers were largely spared, said Michael Karpman, an Urban Institute researcher and one of the studies’ authors.

“A lot of people who were already in a precarious position before the pandemic are now in worse shape, whereas people who were better off have generally been faring better financially,” he said.

Federal relief programs, such as expanded unemployment benefits, helped offset the damage for many families in the first months of the pandemic. But those programs have mostly ended, and talks to revive them have stalled in Washington. With virus cases surging in much of the country, Mr. Karpman warned, the economic toll could increase.

“There could be a lot more hardship coming up this winter if there’s not more relief from Congress, with the impact falling disproportionately on Black and Hispanic workers and their families,” he said.

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Ant Challenged Beijing and Prospered. Now It Toes the Line.

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As Jack Ma of Alibaba helped turn China into the world’s biggest e-commerce market over the past two decades, he was also vowing to pull off a more audacious transformation.

“If the banks don’t change, we’ll change the banks,” he said in 2008, decrying how hard it was for small businesses in China to borrow from government-run lenders.

“The financial industry needs disrupters,” he told People’s Daily, the official Communist Party newspaper, a few years later. His goal, he said, was to make banks and other state-owned enterprises “feel unwell.”

The scope of Mr. Ma’s success is becoming clearer. The vehicle for his financial-technology ambitions, an Alibaba spinoff called Ant Group, is preparing for the largest initial public offering on record. Ant is set to raise $34 billion by selling its shares to the public in Hong Kong and Shanghai, according to stock exchange documents released on Monday. After the listing, Ant would be worth around $310 billion, much more than many global banks.

The company is going public not as a scrappy upstart, but as a leviathan deeply dependent on the good will of the government Mr. Ma once relished prodding.

More than 730 million people use Ant’s Alipay app every month to pay for lunch, invest their savings and shop on credit. Yet Alipay’s size and importance have made it an inevitable target for China’s regulators, which have already brought its business to heel in certain areas.

These days, Ant talks mostly about creating partnerships with big banks, not disrupting or supplanting them. Several government-owned funds and institutions are Ant shareholders and stand to profit handsomely from the public offering.

The question now is how much higher Ant can fly without provoking the Chinese authorities into clipping its wings further.

Excitable investors see Ant as a buzzy internet innovator. The risk is that it becomes more like a heavily regulated “financial digital utility,” said Fraser Howie, the co-author of “Red Capitalism: The Fragile Financial Foundation of China’s Extraordinary Rise.”

“Utility stocks, as far as I remember, were not the ones to be seen as the most exciting,” Mr. Howie said.

Ant declined to comment, citing the quiet period demanded by regulators before its share sale.

The company has played give-and-take with Beijing for years. As smartphone payments became ubiquitous in China, Ant found itself managing huge piles of money in Alipay users’ virtual wallets. The central bank made it park those funds in special accounts where they would earn minimal interest.

After people piled into an easy-to-use investment fund inside Alipay, the government forced the fund to shed risk and lower returns. Regulators curbed a plan to use Alipay data as the basis for a credit-scoring system akin to Americans’ FICO scores.

China’s Supreme Court this summer capped interest rates for consumer loans, though it was unclear how the ceiling would apply to Ant. The central bank is preparing a new virtual currency that could compete against Alipay and another digital wallet, the messaging app WeChat, as an everyday payment tool.

Ant has learned ways of keeping the authorities on its side. Mr. Ma once boasted at the World Economic Forum in Davos, Switzerland, about never taking money from the Chinese government. Today, funds associated with China’s social security system, its sovereign wealth fund, a state-owned life insurance company and the national postal carrier hold stakes in Ant. The I.P.O. is likely to increase the value of their holdings considerably.

“That’s how the state gets its payoff,” Mr. Howie said. With Ant, he said, “the line between state-owned enterprise and private enterprise is highly, highly blurred.”

China, in less than two generations, went from having a state-planned financial system to being at the global vanguard of internet finance, with trillions of dollars in transactions being made on mobile devices each year. Alipay had a lot to do with it.

Alibaba created the service in the early 2000s to hold payments for online purchases in escrow. Its broader usefulness quickly became clear in a country that mostly missed out on the credit card era. Features were added and users piled in. It became impossible for regulators and banks not to see the app as a threat.

ImageAnt Group’s headquarters in Hangzhou, China.
Credit…Alex Plavevski/EPA, via Shutterstock

A big test came when Ant began making an offer to Alipay users: Park your money in a section of the app called Yu’ebao, which means “leftover treasure,” and we will pay you more than the low rates fixed by the government at banks.

People could invest as much or as little as they wanted, making them feel like they were putting their pocket change to use. Yu’ebao was a hit, becoming one of the world’s largest money market funds.

The banks were terrified. One commentator for a state broadcaster called the fund a “vampire” and a “parasite.”

Still, “all the main regulators remained unanimous in saying that this was a positive thing for the Chinese financial system,” said Martin Chorzempa, a research fellow at the Peterson Institute for International Economics in Washington.

“If you can’t actually reform the banks,” Mr. Chorzempa said, “you can inject more competition.”

But then came worries about shadowy, unregulated corners of finance and the dangers they posed to the wider economy. Today, Chinese regulators are tightening supervision of financial holding companies, Ant included. Beijing has kept close watch on the financial instruments that small lenders create out of their consumer loans and sell to investors. Such securities help Ant fund some of its lending. But they also amplify the blowup if too many of those loans aren’t repaid.

“Those kinds of derivative products are something the government is really concerned about,” said Tian X. Hou, founder of the research firm TH Data Capital. Given Ant’s size, she said, “the government should be concerned.”

The broader worry for China is about growing levels of household debt. Beijing wants to cultivate a consumer economy, but excessive borrowing could eventually weigh on people’s spending power. The names of two of Alipay’s popular credit functions, Huabei and Jiebei, are jaunty invitations to spend and borrow.

Huang Ling, 22, started using Huabei when she was in high school. At the time, she didn’t qualify for a credit card. With Huabei’s help, she bought a drone, a scooter, a laptop and more.

The credit line made her feel rich. It also made her realize that if she actually wanted to be rich, she had to get busy.

“Living beyond my means forced me to work harder,” Ms. Huang said.

First, she opened a clothing shop in her hometown, Nanchang, in southeastern China. Then she started an advertising company in the inland metropolis of Chongqing. When the business needed cash, she borrowed from Jiebei.

Online shopping became a way to soothe daily anxieties, and Ms. Huang sometimes racked up thousands of dollars in Huabei bills, which only made her even more anxious. When the pandemic slammed her business, she started falling behind on her payments. That cast her into a deep depression.

Finally, early this month, with her parents’ help, she paid off her debts and closed her Huabei and Jiebei accounts. She felt “elated,” she said.

China’s recent troubles with freewheeling online loan platforms have put the government under pressure to protect ordinary borrowers.

Ant is helped by the fact that its business lines up with many of the Chinese leadership’s priorities: encouraging entrepreneurship and financial inclusion, and expanding the middle class. This year, the company helped the eastern city of Hangzhou, where it is based, set up an early version of the government’s app-based system for dictating coronavirus quarantines.

Such coziness is bound to raise hackles overseas. In Washington, Chinese tech companies that are seen as close to the government are radioactive.

In January 2017, Eric Jing, then Ant’s chief executive, said the company aimed to be serving two billion users worldwide within a decade. Shortly after, Ant announced that it was acquiring the money transfer company MoneyGram to increase its U.S. footprint. By the following January, the deal was dead, thwarted by data security concerns.

More recently, top officials in the Trump administration have discussed whether to place Ant Group on the so-called entity list, which prohibits foreign companies from purchasing American products. Officials from the State Department have suggested that an interagency committee, which also includes officials from the departments of defense, commerce and energy, review Ant for the potential entity listing, according to three people familiar with the matter.

Ant does not talk much anymore about expanding in the United States.

Ana Swanson contributed reporting.

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