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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?

Bargains abound

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.


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Comments
18 comments.
Comment #1 by Paoli2 posted on
Paoli2
Interesting article but I would have liked to read more about the "cons" of buying a home.  For example, even if one pays cash, there are still taxes to cope with and many other expenses (repairs, maintenance etc.) that one doesn't have in an apartment.  Also as seniors, who is supposed to mow the law or one has to make sure you have enough extra money coming in to pay someone else.  Appliances to buy, furniture etc.  How simple it would be if one could only just pay for the house and not be encumbered by all the additional expenses.  I once read an article which ended up stating that it is cheaper for seniors to just rent once they reach a certain age after all the other expenses were added in with buying.  We are back to renting an apartment but I do miss having our own home.

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Comment #2 by Anonymous posted on
Anonymous
Some people don’t realize that the expenses can be a big burden for owning a home.
We for example, own a home free and clear, however, our property tax, flood, fire, wind and peril insurance, maintenence, huge utility bills, repairs and other costs, take over 25% of our
retirement money.
Now imagine if you have a mortgage on top of that, probably over 50% will go out the door of your income every month.
I don’t consider that a wary free retirement, actually imagine if you don’t have to pony up all that money every month for the rest of your life.
Unless you are above average wealthy person and have huge retirement income, I don’t recommend owning a house in your retirement years.

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Comment #3 by Shorebreak posted on
Shorebreak
“This is the best opportunity to buy that we will see in our lifetimes."

Where have I heard that before?

I also see quite a few retired seniors having to take-out reverse mortgages on those "dream homes". Higher and higher property taxes, insurance, utilities and sometimes state income and sales taxes have all cut drastically into a retiree's income. Not to mention the killer of them all, the ZIRP (Zero Interest Rate Policy) of Chairman Ben Bernanke's Federal Reserve, which has no real end in sight. Sure, homes are relatively inexpensive in most locales compared to the bubble days, but right now the 'American Dream' may be a nightmare wolf in sheep's clothing for many in their "golden years".

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Comment #4 by Paoli2 posted on
Paoli2
Thanks folks for the input.  I think I'll keep my little apartment and just do less cooking in my closet of a kitchen!  Can't have everything!

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Comment #5 by Anonymous posted on
Anonymous
To each, their own.  My wife and I plan to always own our own house to do with as we please.  Taxes and insurance are our biggest expense as home owners.  Renters do not escape property taxes and maintenance expenses like some think.  Those expenses are inclusive in the rent money they fork over to their landlord.  I'm not knocking renting.  It's just not for us. We own our home free and clear and have both been retired for several years now. We would have never even considered retiring with a mortgage to pay off. 

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Comment #6 by Shorebreak posted on
Shorebreak
Of course I'm not saying purchasing a home is a bad decision. In my case the 'pros' outweigh the 'cons'. Upon retirement I purchased a home, prior to the bubble and it's paid-off, in a small city that offers decent medical care and is highly rated for military retirees. Of course, I had to move from a high cost-of-living, high tax state that begins with the letter 'C' to a state that has the first initial 'T'. No state income tax and much lower cost of living enable me to endure the property tax increases. I miss the scenery and climate from 'C' but quality of life is paramount. Besides, having an airport ten minutes away means I can just hop a flight and visit old friends.

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Comment #7 by Anonymous posted on
Anonymous
I know a guy who is happily retired in a city that starts with a V in a state that begins with W & has no state tax. He does most of his shopping nearby across the bridge in a big city that starts with P in a state that starts with O & has no sales tax. 

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Comment #8 by Shorebreak posted on
Shorebreak
Anonymous - #7, Sunday, December 16, 2012 - 6:13 PM
Ha,ha.

1
Comment #9 by Anonymous posted on
Anonymous
Shorebreak, not that I'd be interested in living in any state (or country) that starts with a T............... but what makes a city highly or not highly rated for military retirees?

 

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Comment #10 by Shorebreak posted on
Shorebreak
Re: Anonymous - #9, Sunday, December 16, 2012 - 10:33 PM

"Shorebreak, not that I'd be interested in living in any state (or country) that starts with a T............... but what makes a city highly or not highly rated for military retirees?"

  Best Places for Military Retirement

http://www.military.com/finance/usaa-best-places-to-retire/2010/

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Comment #12 by Anonymous posted on
Anonymous
Thank you. Wow, I've been to 2 of the top 10 & all I can politely say is  that is one "interesting" list.

1
Comment #13 by Anonymous posted on
Anonymous
Any military retiree should be looking at Colorado Springs - low cost of living, decent culture and shopping, beautiful scenery, and tons of military health care options. The fact that it isn't on the list really makes me wonder.

1
Comment #15 by Anonymous posted on
Anonymous
#13.........I agree. Colorado Springs would be a helluva nicer place than any on that top 10 list for anyone, (ex-military or not) to live in. 

1
Comment #14 by emdtech posted on
emdtech
Before you make that move out of state, here are a couple of websites you should review. They cover taxes levied each state to help you make an informed decision on where to consider moving:

http://www.retirementliving.com/taxes-by-state

http://money.msn.com/retirement-plan/best-worst-states-for-retiree-taxes-kiplinger.aspx

Also, you should be aware of a hidden tax for selling all real estate starting Jan 1 2013 - 3.4% (not sure of exact percentage) on gross proceeds of a home sale to help pay for health care. This was buried in the health care act. Check with your real estate person to verify accuracy (they should know it by now).

Happy house hunting!

 

2
Comment #16 by Anonymous posted on
Anonymous
#14 - Your comment regarding a 3.4% tax on the gross proceeds of a home sale is totally misleading and flat out wrong. As a practical matter, the 3.8% tax will probably not apply to most of us here or to most sales, due to stated exclusions, but in those cases where it may apply, the tax will be levied only on a portion of the 'gain' on the sale as opposed to the 'gross proceeds' of the sale. So, in the majority of cases, the tax, if any at all, should not be as significant as you have implied. Best to talk with your tax person.

 

 

 

 

 

 



  

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Comment #17 by Anonymous posted on
Anonymous
I'm retiring next year ,I bought 3 months ago and prices have gone up 30 k for my same home across the street ,so calif is rising Fast!

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