Is It Time To Promote Your House For The Retirement You Need?
Is It Time To Sell Your Home For The Retirement You Want?
The real estate market is glowing white right now. In some areas of the country, homes are selling for millions of dollars above asking price. Yes, millions over. So is it time to sell and cash out your home? How Will Moving Affect Your Retirement?
Home Equity and Your Retirement Savings
Your home is a central aspect of your retirement provision – for both lifestyle and financial reasons.
You want to live in a location and residence that suits what you want to do and with whom in retirement.
However, your home is also likely to be one of your most financially valuable assets. And considering how and when to use your home equity for retirement is critical.
Popular strategies for building housing and using home equity as part of a retirement plan include:
- Cash out your home equity now to fund your retirement
- Stay where you are and keep home equity as a backup plan in case you need long-term maintenance
- Move to a place that better suits what you want to do in retirement
- Stay in place and hope to leave your home to the heirs
- And more…
Many considerations are covered below. However, you can run scenarios for your home in the NewRetirement Planner at any time. Compare selling now to what you think selling might look like at some point in the future. What if you stay forever
Or use the Long Term Care section to see how using home equity to meet a potential long term care need will affect your net worth on your longevity.
How crazy is the real estate market right now?
Homes are selling at record prices and breaking all kinds of records. At least one home was recently sold for double the price. The house, a humble three-bedroom home in the Berkeley Hills, California, went on the market for a little over $ 1 million. It sold for $ 2.3 million in cash two weeks later.
In other areas, it’s not uncommon for 2 million households to ask for an extra million, and competition and price hikes are so fierce with starter houses too. Buyers are offering NBA tickets, cryptocurrency, personal loans, and more to encourage sellers to choose their offering. It’s all crazy.
According to the S&P Case-Shiller Index:
- The 10 cities annual increase was 16.4% in May (up from 14.5% in April).
- The 20-city composite increased by 17%, compared to 15% in the previous year
- Phoenix, San Diego, and Seattle saw the highest year-over-year gains among the 20 cities in May
- And 5 cities in the index (Cleveland, Dallas, Denver, Seattle, and Charlotte, North Carolina) saw the highest gains ever
Why the housing market is so hot right now
House prices are so high due to various factors. The innumerable reasons, however, add up to an economics lesson: strong demand (many home buyers) meets weak supply (few houses for sale).
About the weak offer:
The reasons why the housing supply has remained low – 40% lower in 2020 than in 2019 – include:
New residential construction has slowed down: House construction slowed during the pandemic. Some experts estimate that around 3 million homes are scarce in the United States and that it will take a while to catch up.
The people stop: People stay in their homes – don’t move – maybe because of the pandemic.
In addition, older people stay longer in their homes. The average length of stay in a household is currently 10 years. It used to be only 7.
Arrears in foreclosures: Another factor may be the federal government’s moratorium on foreclosures. (Homeowners who couldn’t afford to pay their mortgage could apply for an extended deferral, which was extended.)
About the strong demand:
Millennials – the largest generation – are moving into the home buying years.
6 Considerations For Selling Your Home
The appeal of selling your home at a record high is strong. However, other factors also play a role.
1. Where do you want to live? Now and in the future?
Many people drool over the idea of selling their home for a premium. Remember, you have to live somewhere. And depending on where you want to live, it can be too expensive to sell and buy again.
That being said, if you want to move and can afford it, think about the financial considerations, but go for it.
However, try not to just think about where you want to live this year and next, but think about the rest of your life.
Here are 15 tips on how to downsize for retirement.
2. Your local real estate market
National trends are interesting, but they don’t always reflect what’s happening in your current community or where you might want to live.
So start by understanding the market, where you are now and where you want to go.
Zillow, Redfin, and Trulia are all good sources of real estate information.
3. Low, but perhaps rising, interest rates
Low interest rates are another driver of higher house prices. People can afford to pay more for a home when they pay a lower interest rate on their mortgage.
If interest rates rise, it could depress home prices – an argument for an immediate sale.
There are many considerations when it comes to taxes and selling your home.
State and Local Taxes: Every state has a form of property tax, but it is very different. If you’re moving, it pays to understand the state and local tax ramifications. Tax-Rates.org rates Louisiana as the best state for property taxes and New Jersey as the worst.
Your tax base: In many areas, taxes are calculated based on the value of your home when you buy it. In California, if you bought your home for $ 300,000 25 years ago, your taxes will be based on the $ 300,000 value, not the $ 2 million it could be valued at now.
Selling your home and foregoing the tax base can be expensive.
Taxes on the profit from the sale of a home: According to TurboTax, “If you owned and lived in the place for 2 of the 5 years prior to the sale, up to $ 250,000 of the profit is tax-free ($ 500,000 if you are married and file a joint declaration).
Anything in excess of this amount will be reported as a capital gain on Appendix D of your tax return.
Mortgage interest deductions: Very few homeowners actually benefit from mortgage interest deductions, and when they do, the benefits are minimal, according to Investopedia.
5. More inventory may be available soon
The shortage of home inventory, which helps add home value, could end for the following reasons. If these trends continue, house prices can fall.
The price trend may affect your desire to sell now or to wait.
Is there a construction boom coming? Data from the US Census Bureau shows that home builders are trying to keep up with demand.
Baby boomers could soon age out of the market: Baby boomers currently own about a third of the homes in the United States. In the next decade, millions of boomers will age out of their homes. This will result in thousands of additional homes adding to the market every year.
Are we at the end of the pandemic? The coronavirus has created a certain amount of uncertainty in everyone’s life. If we can get out of the pandemic, more people may be moving.
6. Do you live in the suburbs (or are you trying to move)? A city?
Not all local areas have experienced or will experience the same type of price increases.
Exurbs are in: Right now the “exurbs” are desirable. The Oxford English Dictionary defines Exurbs as “a district outside of a city, especially in an affluent area outside the suburbs”. These areas have become popular due to lower housing costs and because the trend towards home work means that employees no longer have to report to the office every day.
Cities are out: We’re seeing a recovery back to the cities, but people fled metropolitan areas during the pandemic.
So if you want to maximize your home’s payoff, ideally you are moving from suburban to city.
Not sure whether to sell? Run what-if scenarios!
The NewRetirement Planner is a great way to run scenarios to see the financial impact of buying and selling homes. You can model downsizing, additions, second homes, equity to fund retirement or long-term care, and more …
You can see the impact of residential scenarios on your net worth, estate value on longevity, cash flow, tax liabilities, and other key metrics.
And when you run these kinds of “what-if” scenarios, you can envision various future possibilities – which can help you determine what you want in life.
Have fun planning!