I bought a brand new home for my young family 4 years ago. I love my house and have done much to improve it. I can also easily afford my house while contributing to a 401k. When I moved in the neighborhood it was a nice middle class neighborhood with young families. But a disturbing thing began happening about 2 years ago. One of the young families moved out and a new family moved in. The new family did not take care of the yard or the home. It looks like a dump now with tall grass, unkept landscaping, garage door coming off the hinges, etc. They even started selling drugs. This then spread into the other neighboring homes. People saw what was happening to the home across the street, moved out, and the same "undesirable" types of neighbors moved in. Right now, I am surrounded by three homes with the same problem. Grass is two feet tall, landscaping out of control, homes not being maintained, etc. The neighborhood is now what I would characterize as being in constant decline and the original families keep moving out.
My question has to do with what the prevailing financial wisdom is on staying in a neighborhood like mine (one I can easily afford) versus moving into a more expensive neighborhood that would stretch me financially.
Right now I make $130k a year and am 4 years into a 30-year conventional mortgage with a 4.25% interest rate resulting in $1370/mo. mortgage payment (P+I). I have $40k in auto loan debt at 1.9% over 6 years resulting in $650/mo car payments. I have no other debt and contribute 7% to a 401k with an additional 5% matching from my employer. The house in the nicer neighborhood we're looking at is $475k and the realtor we're working with thinks we will net $168k on our current home if we sell. Current interest rate for a 30 year conventional loan is about 5.8%. I am not even sure if this is enough information to give a clear picture on my financial situation.
What is the financially wise move? Stay in the declining neighborhood we can afford or scrape by in a nicer neighborhood? Is moving financial suicide? I could really use some advice.