My wife and I are looking to possibly upgrade over our current home by building a brand new house that will better suit our growing family. Our current home is fine and even tolerable for the long term, but we just want more space for the boys to play indoors and for us to entertain. The new house is just up the street and we would be staying in our neighborhood, which we love.

I could easily pay off our current house in a couple of years but the new house will throw us back into debt in a big way. The mortgage would be more than manageable at the new place (still 10% or less of my take-home pay), but it would represent a substantial increase in our debt load (and risk, of course). We do not have any other debts.

I am absolutely paralyzed by this decision, however. One problem is that I don't share the view that the economy is improving in any significant way and I think that our debt load as a country will mean that we all may be facing a reduced quality of life (and perhaps high levels of inflation) in the not-too-distant future. In light of that, part of me says that I should buckle down and minimize risk and be happy to have a paid-for house. The other part of me says that I should seize the opportunity to get a large mortgage at crazy low interest rates before the shit really hits the fan.

How do I even begin to go about this analysis?

Nobody can predict the future, full stop.

One could easily ask the same kinds of questions when debating whether to have kids. If you're fundamentally pessimistic, you wouldn't have kids and you wouldn't buy/build a new house.

The fact that you have kids is evidence that, somewhere inside, you have a degree of optimism about the future.

That said, if I were faced with this situation I wouldn't build the new house simply because I'm debt-averse and my job isn't terribly secure. We live in a 900-square-foot house whose previous owners were a family of seven. Those five kids did just fine sharing two bedrooms (actually it was four boys in one room and the girl had her own room).

Edited to add that I don't think you need an objective analysis in this case. I think you need to follow your gut. If your job is secure and you think the benefits of a new home are worth the risk, I'd go for it. If you worry that something could happen to your job that forces you to relocate, or if you're uncomfortable with the idea of going back into debt, then don't. Would you rent out your existing house or would you sell it? That might factor into the decision. But you can't do a true "analysis" because the future is unknowable. The economy could prove your pessimism wrong, or it could prove it right. And does it really matter what the economy does, unless it affects your job? I've lived through a few recessions in my life (I'm 54) and honestly unless I'd been reading the papers I would never have known.

Well, again no way to predict the future. Some questions to ask, how secure is your job? Can your spouse pick up more income should something happen, to pay the mortgage? Are you planning on staying in that area, during employment, and retirement? Does that house fit both times of your life? How old are you? When are you planning on retiring? Does buying the house impact your retirement or anticipated jobs?

Personally paying 10% of your income on housing, doesn't seem too bad. But if you want to be debt free now, then it IS too much. Only you can make that call.

I do feel that the US economy is not going to get appreciably better. But it doesn't mean that your particular situation won't be the same or better. Depends on what sector you are in.

My job is relatively secure in that I am a partner at a large law firm. However, partners can and are de-equitized if their value to the firm declines. My income is so large that it would be hard for me to find anything comparable in this city, even if my wife and I were both to work, if I were to lose my job. Now that you raise it, I think that might be the source of my stress and I should probably just buckle down, pay off the house, and live my life stress-free.

Nobody really knows what will happen in the economy next, but David Stockman believes that we're in the midst of another housing bubble that will burst when interest rates eventually go up.

I'm pretty much in the same boat: if I lost my job, any other job in my city that I'm qualified for would require at least a 70% pay cut. So I'm very reluctant to take on additional debt, plus the fact that I'm in my 50s means I'd risk carrying debt during retirement, which is generally not a good thing to do (I know Doing Homework is planning to carry some debt during retirement, but he's got it all worked out in a smart manner, as one would expect).

For a few years we were considering the idea of buying our neighbor's place when they decide to move, and expanding onto their property, perhaps razing their house and putting up a big greenhouse or a little cottage for guests and our home offices. The main attraction is that they have a garage and a driveway, and we don't so we have to park on the street. But the more we thought about it, the more we decided that taking on more debt would be too stressful and we'll just make the best with what we have. We may at some point rent some extra space nearby, but I don't think we're going to buy anything.

I'm just in my late-30's, so I'm in that stage of life that all of my peers are taking on huge amounts of debt, so I feel as if I'm out of sync with what everybody else was doing.

I think part of the problem is that I don't really have financial goals. I tell myself that I want to retire when I'm 50, but all the lawyers I talk to say that once you get to that point, it's almost impossible to walk away before they push you out the door.

Well, if you DON'T take on that debt and instead sock away the money you would have spent on that house, you'll probably have such a huge nest egg by the time you're 50 that walking away from all that money will be a no-brainer.

I've seen enough horror stories from people who led deeply leveraged lives that I think aversion to debt can be a pretty healthy thing. Some people really live large and go deep into debt based on an assumption that everything will follow according to plan and they'll pay it off and/or they'll make a killing on whatever they've borrowed for (a house, investments, etc.). But when it doesn't work out according to plan, it can be disastrous. I was just reading the story of a couple who have $1 million in debt; part of that is in mortgages on three houses but they also have considerable consumer debt and no savings. And they both lost their jobs. It could take them the rest of their lives to pay it all off.

That's not necessarily a bad thing.

Well, all things being equal, if people can afford the same monthly payment each month toward housing, when interest rates go up, they'll be able to afford less house and prices will fall.

I think the only "in this economy" aspect that affects you would be how much the economy affects whether or not you keep your job... which moves the question from a macro one to a very micro one.

Just something to think about...I wonder if there may be a cause/effect relationship in your two paragraphs above. Maybe all the lawyers you talk with who are saying it's almost impossible to walk away at 50 were taking on huge amounts of debt in their 30s, and that's why they now feel it's almost impossible to walk away.

I think it's probably more like once you gain that level of seniority and experience in a big law firm, the salary you can command is so high that people find it hard to walk away from it. On the other hand, if you resist the temptation to live large, you could probably get by happily on 1/10 to 1/4 of that salary in your 50s, saving or investing the rest, and set yourself up for a very comfortable 40 years of retirement by 55 or so.

That's interesting in that it flips the idea on its head. The way we normally look at it is that someone in their 50s who makes $500k a year has a bigger nest egg than someone who makes $50k.

But with this thinking, they have a much higher cost of quitting, such that they might say, "I can't retire! It would cost me half a million dollars per year!"

And if you have kids, it's even harder because if you're planning to leave them an inheritance you'll leave them more if you keep working. The same applies for high earners who are committed to philanthropy: the longer you work, the more you can donate to the causes you support. Once you retire, your level of giving typically declines.