Real-estate nightmare looms for retirees

By Robert Powell, MarketWatch


BOSTON (MarketWatch) — Five short years ago, many learned men and women warned Americans against thinking that rising home prices would eliminate or lessen the need for them to save for retirement. Institutions and advisers alike advised people against relying on the equity in their homes to finance part or even all of their consumption needs in retirement.

Today, that’s no longer the case. In fact, we now have almost the opposite situation. With home prices falling for nearly five years, many Americans must consider what to do with their homes should prices continue to collapse and the equity in their homes — if they are still lucky enough to have any — disappears completely.

Should they stay in place and wait it out? Or should they bail out now and downsize? If they stay in place, should they pay down their mortgage, if they have one? And if they have a home-equity loan, should they refinance that or, if possible, accelerate the payments on that debt?

“As always, the answer to such questions is determined by the age, desires, financial situation and other characteristics of the owners,” said Barney Walsh, a pension- and retirement-planning consultant with Morgan & Walsh. ............(more)

The complete piece is at: http://www.marketwatch.com/story/keep-your-house-from-becoming-a-retirement-burden-2011-05-12

With no or underwater equity better to keep the home and homestead family or new owners if the payments are realistic for the income of the inheritors. That means no nursing home(assuming one cannot afford nursing care insurance plans), no downsizing, no other smart financing, but people with expensive homes and high mortgages and other problems might be looking for other ways to game relative defeat.

Trying to determine how the bankster game is going is also intriguing for threatened seniors. The foreclosure pace and market forces that work against the consumer both for denying low price deals and mortgage relief is all reasonably fixed for the benefit of the profiteer class- at taxpayer bailout expense.

If you own your own home outright, then, even if you get less for selling it, you still have funds to purchase or rent something else of equal or lesser value (less transaction costs). I guess you could foresee a time in which the extra utilities related to a larger home will compress prices on such homes towards smaller homes. I have to think the possibility of multifamily purchase of larger homes might help to hold their value. Another consideration might be the difference between assessed value and actual value. If you are paying more in taxes for a larger home, then it becomes of less value than the less taxed smaller homes.

The thing to remember about owning a home is that it is an anchor. It fixes you to a particular location and subjects you to the risk of that location becoming less desirable over time (either absolutely such as crime and reduced amenities or specifically because the home is not near the grandkids etc).

The advantage of owning is still that you lock in your housing costs (less increases in maintenance and property taxes). If you sell and invest the proceeds, it would be desirable to lock these proceeds into some sort of index that floats with housing prices, but such situations are rare. The funds tied to the Case Shiller Index closed at the end of 2009.

Anyone who considered their home as an investment beyond locking in housing costs is sadly misguided. I said the same thing back in 2008 even before the housing crisis. From a lifestyle standpoint owning has many benefits. We have lived in the same house for 11 years, and many of our neighbors have stayed the same. The location of the house has allowed us to access great schools which are close and have a host of amenities close to us. It turns out in our case that we have seen some market appreciation in the 11 years (up 25% from purchase), but even without market appreciation it has been a good decision. If you desire pets especially active dogs, it is difficult to find rentals which will accomodate you.

The worst advice I have ever heard was buy as much house as you can afford. No - buy as little house as will meet your needs with some sacrifice. Also buy the smaller or ugly duckling house in better neighborhoods instead of getting the larger house in a less desirable neighborhood. Also stick with established neighborhoods over new developments.

I have not lived around a blighted area with lots of foreclosures. At what point does living in your home become so undesirable that, even with a paid up mortgage, you have to walk away? You have to feel for those individuals. The ones who have paid their mortgages are the ones who suffer the most in these cases.

I think my plan is to eventually sell my home when my daughters finish High School (possibly after college for the younger one if she elects to stay at home for college). I am confident that I will be able to sell my home for something given that I will not have a mortgage at that time. I doubt I will purchase again unless it is to buy my mother's home.

And if you actually need to sell your house to have enough money to retire, DON"T RETIRE!!! YOU DON'T HAVE THE MONEY!!!