House Prices at All Time High: Can You Afford Retirement Now?

According to the National Association of Realtors (NAR), the national median sales price for existing homes is currently at an all time high and sales have risen at their highest pace in over eight years.
Lawrence Yun, NAR chief economist, is quoted in a press release saying, “Buyers have come back in force, leading to the strongest past two months in sales since early 2007.”

Yun believes these are the reasons for the robust sales: “This wave of demand is being fueled by a year-plus of steady job growth and an improving economy that’s giving more households the financial wherewithal and incentive to buy.  June sales were also likely propelled by the spring’s initial phase of rising mortgage rates, which usually prods some prospective buyers to buy now rather than wait until later when borrowing costs could be higher.”

What Do Robust Housing Sales Mean for Your Retirement?

If you are a homeowner, then higher home values could potentially make your retirement a little easier.  For most households, homes are the most valuable asset and an increase in value can mean that your retirement is more solvent — if you are willing to tap your home equity.

Here are three things homeowners should consider:

1. Net Worth: Record housing values might mean that you currently have an overall higher net worth.  Your home’s value is calculated as part of all of the assets that contribute to the sum total of your wealth.

However, it can be misleading for homeowners to bank on their home’s value.

• First, it is important to remember that the amount  you still owe on your mortgage is subtracted from your net worth.
• And, secondly and perhaps more importantly, unless you are refinancing, selling your home or getting another mortgage, the value of your home does not mean much today. Housing prices can swing rapidly and a home is only worth whatever it is valued when you are actually doing a transaction.

2. Downsizing or Relocation Might Be More Difficult: Downsizing and relocating are popular options for older adults looking for the best places to retire.  Depending on the  particulars of your housing market and the prices where you want to move, relocating might be more or less expensive than you think.  The NAR reports that all major regions in the United States experienced sales gains in June and have now risen above year over year levels f or six consecutive months.  This means that most places are more expensive than they were before.  However, you may be able to find locales with more or less growth.

3. Higher Reverse Mortgage Loan Amounts:  Reverse mortgages are growing in popularity as a way for older homeowners (62 years and older) to get rid of monthly mortgage payments and gain access to some of their home equity while continuing to own and live in their home.

Higher home values mean that most reverse mortgage borrowers can tap higher loan amounts now than before.  And borrowers who could not qualify in the past might be able to qualify now.

What About Rising Mortgage Rates?

The NAR report suggests that rising interest rates may be one reason for the record high housing values.

We have experienced record low interest rates for the last few years and the low interest rates generally encourage home buying because they make homes more affordable.  So, when the interest rates begin to rise, more homes are bought because buyers are concerned that interest rates will continue to rise and make homes unaffordable.

Higher interest rates will also potentially make reverse mortgages a more expensive option.

However, while economic signals suggest that interest rates may rise, that is pure fortune telling.  No one can really predict the future.

Timing the Market, Should You Act Now?

So, do high home values and low but possibly rising  interest rates mean that you need to do something with your home now in order to maximize your home’s value and your ability to fund retirement?

While the data suggests that you could maybe maximize your wealth by acting now, most financial and real estate experts caution against trying to time the market.

Your house may be your most valuable asset, but it is also your home — it is where you live and has a value greater than money. Furthermore, unforeseen financial pressures or opportunities might mean that what you thought was optimal timing is not.

It is important to always be cautious with big financial moves but it might not hurt to discuss your situation with a real estate professional, a reverse mortgage broker or a financial advisor.

Do You Have an Overall Retirement  Plan?

When most people think retirement planning, they think primarily about their savings and how those savings are invested.  However, work, insurance, retirement expenses, the timing of Social Security and housing each have a much bigger impact on the average retiree than savings.

The Boldin Retirement Planner can help you with understanding how these factors will impact your retirement.