Owning a home is the cornerstone of the American dream. For decades, we have been told that buying property is the safest way to build wealth. But there is a tipping point where that asset stops serving you and starts draining you.
Financial planners call this being house poor. It is a specific economic condition where a person has significant home equity — on paper, you are rich — but has very little discretionary cash because the home itself consumes too much income.
This is not just a problem for first-time buyers struggling to get on the property ladder. It is increasingly common among retirees and older adults.
According to the Joint Center for Housing Studies at Harvard, 43% of older homeowners with mortgages are now considered “cost-burdened,” meaning they spend more than 30% of their income on housing.
Even if your mortgage is paid off, rising insurance premiums and property taxes can still push you into the danger zone. Here are five signs your house is draining your wealth, and what the math says you should do about it.
1. You’re breaking the 28/36 rule
Bankers use a simple formula to decide if you can afford a home, but few homeowners check this math after they move in. It is called the 28/36 rule.
- 28%: Your total housing costs (mortgage principal, interest, taxes and insurance) should not exceed 28% of your gross monthly income.
- 36%: Your total debt payments (housing plus cars, credit cards and loans) should not exceed 36% of your gross income.
If you are retired, your “income” is likely fixed — consisting of Social Security, pensions and savings withdrawals. If your housing expenses consume 40% or 50% of that monthly cash flow, you are house poor. You are funneling money into a single, illiquid asset at the expense of your daily quality of life.
2. Maintenance costs catch you off guard
A paid-off mortgage does not mean a free house. Maintenance is a perpetual bill that never ends.
A standard rule of thumb is to budget 1% to 4% of your home’s value annually for repairs. For a $400,000 house, that is $4,000 to $16,000 a year. If you don’t have that cash set aside, hidden homeowner costs might force you to defer necessary repairs.
The reality for many is even harsher. If a $2,000 plumbing emergency or a new roof feels like a financial catastrophe rather than a planned expense, your house is costing more than you can afford.
3. Insurance and taxes are eating your raise
Inflation does not just hit the grocery store; it hits your escrow account. Even if you have a fixed-rate mortgage, the other components of your monthly payment are variable — and they are skyrocketing.
Home insurance premiums rose by roughly 8% in 2024 (triple the average inflation rate), with much sharper spikes in states like Florida, California and Louisiana. Property taxes are following suit as local governments reassess home values.
If your Social Security cost-of-living adjustment (COLA) was swallowed entirely by a hike in your property tax bill, your home is eroding your purchasing power.
4. You have high equity but low liquidity
This is the classic “asset rich, cash poor” paradox. You might live in a home worth $800,000, which looks great on a balance sheet. But you cannot buy groceries with a brick.
If 80% of your net worth is tied up in your primary residence, you are dangerously undiversified. You have immense capital trapped in the walls of your house, earning zero distinct cash flow (unless you rent it out) while costing you money to maintain. If you are hesitant to spend money on travel, health care or hobbies because “money is tight,” despite having a high net worth, your house is the culprit.
5. You feel stuck
The final sign is emotional. Do you stay in your home because you love it, or because moving feels too expensive or physically daunting?
Many older adults fall into the trap of aging in place without modifying the “place.” They stay in a 2,500-square-foot multi-story home that requires constant cleaning, yard work and heating, simply because they fear the hassle of downsizing.
How to free yourself
If these signs sound familiar, you have options to unlock that trapped wealth:
- Downsize: Selling a large home and buying a smaller, more efficient one can release hundreds of thousands of dollars in equity to fund your retirement. (See: 8 Ways to Lower Your Housing Costs in Retirement)
- House Hack: If you have extra space, renting out a room or an accessory dwelling unit (ADU) can turn your cash-draining liability into a cash-flowing asset.
- Relocate: Moving to a region with lower property taxes and insurance rates can instantly fix your 28/36 ratio.
Your house should be a sanctuary, not a stressor. If the math doesn’t add up, it might be time to cash out and find a home that fits your budget as well as it fits your lifestyle.