Mortgage rates, though a tad higher than prior to the presidential election, are still hovering near historic lows. And real estate analysts say fears of rising rates are now spurring many seniors into opportunistic housing moves.
“Seniors are very hyperaware of interest rates these days and how they can lock in low housing costs for their retirement years,” says Daren Blomquist, who tracks real estate trends for Attom Data Solutions (attomdata.com).
Blomquist says one increasingly strong trend involves seniors migrating to cheaper areas to reduce their living expenses.
“For example, some older folks are cashing out properties in high-cost San Francisco and moving to less pricey Sacramento. Others are leaving the New York or Washington, D.C., areas for towns in less costly parts of Florida or Arizona,” he says.
Of course, there are many ways for seniors to take advantage of low mortgage rates. Besides downsizing, they could refinance an existing mortgage to reduce their monthly payments by cutting their interest rate or extending the term. Or they could tap their equity through a cash-out refinance which allows them to rehab their place to prepare for their later years.
“People who want to age in place might need to add a first-floor bedroom so they won’t have to use stairs when they get older,” Blomquist says.
Here are a few pointers for seniors considering their real estate options:
-- Begin with a snapshot of your full financial situation.
Thomas J. Casey, a certified financial planner, says many homebuyers of all ages make real estate decisions in isolation, without first considering how their moves fit into an overall financial plan. But he says it’s especially important for seniors to ponder these implications.
“You need a spending plan that tells you how much it now costs you to live and how you expect that to change going forward,” he says.
One obvious way to develop a comprehensive plan is with the help of a financial adviser. If you choose that route, Eric Tyson, co-author of “Personal Finance After 50 for Dummies,” recommends you hire one compensated on a fee-only basis. That means the planner doesn’t receive commissions by selling you stocks, bonds or insurance products. Also, select an adviser who takes a neutral view of real estate.
“Many financial planners are biased against real estate,” he says.
You can find the names of fee-only planners through the National Association of Personal Financial Advisors (napfa.org).
Alternatively, Tyson suggests you consider hiring a certified public accountant to assist you in the planning process. One way to find a CPA who specializes in personal finance is through the American Institute of Certified Public Accountants (aicpa.org).
-- Reduce the cost of doing your own financial planning with some self-analysis.
One key step in financial planning involves an examination of your current spending patterns. You need to know how much you routinely spend -- both in terms of mandatory expenses (like out-of-pocket health care costs) and discretionary outlays (like restaurant bills).
Unless you regularly track these numbers (on paper or with a specialized personal finance tool, such as Quicken), assembling this information can be time-consuming. To avoid paying an adviser to assist with this preliminary work, pull out your credit card statements and checkbook and tabulate these numbers yourself.
“Crunch data before walking into your adviser’s office,” Tyson says. He also recommends you use the free online retirement calculators available through such investment firms as Vanguard (vanguard.com), and Fidelity (fidelity.com).
-- Don’t assume rapid housing appreciation in the future.
Past turmoil in real estate markets has done little to weaken enthusiasm about the investment potential of property, according to Tyson. But he contends that due to high transaction costs, few seniors can expect to make a profit on a home they purchase in 2017 unless they intend to hold the place for at least three to five years.
-- Take into account your favored retirement lifestyle when buying a home.
Through the years, Casey has noticed that his clients vary widely in terms of their expectations for living standards in retirement. Some want to continue dining at expensive restaurants and to travel abroad. But others expect to spend modestly and work part-time as long as possible.
Besides factoring in finances, seniors need to think about where they'll be comfortable living in their retirement years.
“Location is probably the most critical factor," Casey says. In my experience, people who retire near family and friends are much happier than those who move to an isolated place, even if that faraway place is much cheaper.”
(To contact Ellen James Martin, email her at email@example.com.)