Should You Buy Your Retirement Home Now – Ready or Not?
The golden years can be about packing up and moving. In a Del Webb Baby Boomer survey, over a third of those surveyed said they plan to move during retirement, and 50 percent of them said they plan to relocate to another state. With moving a part of many people's retirement plans, some are wondering whether they should buy that dream retirement home now, early, ready or not.
The temptation is clear. Interest rates remain at historic lows. Meanwhile, hints of recovery in the housing market have some concerned that it won't be long before prices start to creep up. Is now the last best chance to get a deal on a retirement home?
Relative to their highs, homes are less expensive than they were before the burst of the real estate bubble in 2008. Although home prices in many regions have already begun to move upwards, most homes being sold are still being sold for less than the value at the height of the bubble, says Barry Taylor, a certified financial planner with Integral Financial Solutions. “So relatively speaking, there are still some good buying opportunities.”
Some are even more enthusiastic, “This is the best opportunity to buy that we will see in our lifetimes. There are numerous great deals and mortgages are almost free, with a 30-year mortgage averaging 3.4% as of December 7,” says Jim Heafner, president of Heafner Financial Solutions.
How fast will prices rise?
Taylor expects a slow, but steady improvement in the economy and employment. “Thus, the confluence of low interest rates, more availability of money for mortgages and increased employment will lead to an increase in housing demand and therefore prices will continue to increase, over current levels,” he says.
However, prices will vary by region and demographic. “The demand for family homes will continue, and as more baby boomers retire, the demand for retirement housing will increase significantly, which may lead to even greater appreciation of homes for retirees,” says Taylor. In fact, neighborhoods where retirees want to live may see prices increase more rapidly than other market niches. “It may be a good strategy to buy that dream retirement home now, even if it is earlier than planned,” adds Taylor.
To buy or not?
However that's not to say you should leap without looking. There is no need to rush. Interest rates are expected to remain low for the next year or two and lenders are showing signs of easing loan restrictions, says Taylor. While it is reasonable to assume the values will continue to increase, buying the new home now will have the greatest impact on the financial well-being of retirees if they don't have to sell an existing home to make the new purchase happen. If a buyer has adequate cash to buy a new home without selling their existing home, they may be able to get a good value now, and sell their current home later when prices have appreciated further.
For example, if you have the cash for the home you ultimately want to live in and can rent the house to cover the debt until you're ready to move, then you have purchased your home for less than it will most likely cost in the future. When you are ready to retire then move into your new home (purchased earlier at a lower price) and then sell your current home at a appreciated price, it's a win-win. You save on the purchase of your dream home and realize a greater gain on the sale of the home you live in now.
“Buying now is very likely a prudent move if you don't need substantial appreciation to justify your purchase, or are willing to wait out a slow recovery over the next few years,” says Heafner.
Buying is tricky though, if you don't have the cash to purchase without selling. Says Taylor, “Recognize that while you are buying your new home at a discount, you may also be selling your current home at a discount, which may result in a 'financial wash',” says Taylor.
Take your time. “This is not an impulse buy. Don't get swept up in the exotic dream. Talk to a tax planner and financial planner. Have them check the numbers. They may see something you missed on the money front,” says Kathy Braddock, co-founder of Rutenberg Realty.
While doing the math may be easy in theory, emotions are involved. “If it's your dream home, it probably isn't all about the money anyway. Life is short and dreams precious,” says Heafner.
The bottom line, says Taylor, “So whether it's a good time to purchase your dream retirement home, like most financial decisions, it depends.” – mostly on what matters most to you.