"In this sticky web that we're all in, behaving decently is no small task." -- Novelist Stacey D'Erasmo

Saturday, June 18, 2016

Truth or Consequences for Real Estate

     Robert Shiller, the real-estate guru from Yale University, and the man behind the S&P/Case-Shiller Home Price Index, wrote a piece for the NY Times last weekend, reassuring readers that they shouldn't worry too much about rising home prices. He says in The Overinflated Fear of Being Priced Out of Housing that rising prices have set off fears that real estate will become ever more expensive, making it impossible for people to buy a home.

     Presumably he's talking to Millennials and other first-time home buyers. For those of us who already own a home, rising prices are a good thing. Or, at least they are if you don't have to turn around and buy another one.

What we want
     I remember buying our first house, for $79,000. Half a dozen years later, we sold it for $179,000. But did we really make $100,000? Our old place wasn't a better house just because it was six years later. It was the same old pile of sticks (and, believe me, it was an old pile of sticks!). We were exchanging it for another pile of sticks in a different neighborhood. They were  similar piles of sticks, just trading at higher prices.

     This is all on my mind since we're selling our four-bedroom family home in the suburbs and looking to buy a smaller retirement home, but hopefully one that's a little nicer, someplace where the climate is a little warmer and the cost of living a little lower. This is a process that a lot of retirees go through, and the retirement literature makes it sound so easy. But it is not easy.

     I can tell you one thing for sure. We're selling our New York home for a price that's between 5 and 10 percent higher than we could have gotten last year. But we're also selling it for 15 percent less than what we paid for it at the top of the market in 2007.

     Don't feel too sorry for us though. Both B and I sold our old homes at the same time, at the inflated 2007 prices. So we came out about even.

     Still, it hurts to lose money. And it seems like everyplace else we look has home prices that are higher than we imagined. We've looked around Philadelphia. The prices are just as high as New York. We've looked along the Jersey Shore. The prices are high. We tried Washington, DC. Hah! There's a laugh. Home prices around Washington, DC, are higher than our national debt!

     We looked around Charleston, SC, where B's son now lives. The home prices are more reasonable ... if you want to live in some random development off the highway. But if you want to live in historic downtown Charleston, or near the beach -- in other words, a place where you'd really like to live -- then the prices suddenly pop up to astronomical levels again.

     Robert Shiller reassures us that while there are anomalies, the long-term trend in home prices will be tepid. Currently there are some cities with slow employment growth where home prices are not going up by much: Boston, New York, Cleveland. And there are a few cities with steep price increases. These are the cities, according to the professor, where job growth has been strong:  Denver, Seattle, Portland. But he assures us that prices will level off in these places, as more homes are built to increase supply, and some people are priced out of the market and gravitate to other cities. Then other cities will experience above-normal price increases, for a while anyway, until things average out again.

     He's relating home prices to job growth. But what about us retired folks? I've seen several recent articles suggesting that Millennials are finally beginning to move out of center city and are even (horrors!) considering moving to the suburbs. Rents have skyrocketed in the city, and besides, Millennials are now starting to think about having families and so they are looking for more space and better schools and more convenient shopping. This should be good news for baby boomers who want to sell their homes in the suburbs and move to less expensive retirement meccas.

What we can afford
     But what about those retirement meccas? Will prices go up in places where baby boomers want to retire -- places like Florida, Arizona, the Carolinas and the Pacific Northwest? Will prices then deflate in the places baby boomers are leaving? The Northeast, the Midwest, California?

     I heard one interesting remark last night at a party. I cannot verify if it's true. A friend of mine bought a townhouse near Ft. Myers, FL, about two years ago. He goes down there for three months in the winter. He said it would cost him $9,000 to rent his place for three months. But owning it costs about $8,000, for the entire year. It costs less to own than to rent, even for three months.

     I don't know. You tell me. All I know is that I've bought and sold four houses in my lifetime. And every time it seems like the situation is this: When you sell your home, you don't get quite as much as you'd hoped, but the place you want to buy costs more than you can afford.


22 comments:

Anonymous said...

Well, good luck. I have no intention of selling my home and moving somewhere else. No sir, not at my age.

Barbara said...

I have owned several houses over the years. Each time I got into the real estate search it seemed the game had changed. I am curious to see how the changes Baby Boomers are making will affect the real estate market.

Kathy @ SMART Living 365.com said...

Hi Tom! It is a bit tricky to navigate but if my history and my "professional opinion" matters at all, you can get through it and come out well. Most importantly you must be patient and willing to be flexible. My husband and I have been in real estate for over 30 years now and one thing we know for sure is that there will be another "recession" and that prices will adjust again. Right now (not as bad as 2007) prices are high and still rising. Simply put, a big problem with that is the artificially maintained low interest rates. If/when those interest rates go to where they should, then prices will drop because people will not be able to qualify at the correct rates. Plus, with other market fluctuations real estate will adjust. If you have patience and are willing to be flexible until that happens, then you will have many more opportunities. Unfortunately most people can't wait. They panic and think prices will only go up. (short memories) or they want to be settled so they pay for that. It's up to you but estimates are that the real estate market will be "adjusting" again within 3 years. ~Kathy

Pam said...

One thing I'm hearing from some of our older friends, is when you start shopping for your retirement home, it's wise to fast-forward to asking yourself, "Will I be able to afford this home and keep up with its maintenance for the rest of my life?" And, if you have a partner, ask yourselves if you could stay in the home by yourself (I know it's not easy to think about losing a partner, but that is reality.)

Finding the right size home is a big challenge. We have friends who built their dream home for retirement, but now they realize it's too much house, the taxes are higher than expected, and they're trying to figure out what to do next.

This might sound funny (but I live in the Midwest, where practicality is a big deal), but we're seeing some retirees leaning toward bigger garages, and smaller homes. Extra garage space doesn't cost much extra, but it can be used in lots of different ways.




Anonymous said...

Prices in the city are so astronomical that people have no choice but to move further and further out in order to afford housing. As long as the area has a train (or bus) to get them back to the city for their job, they will buy and pay whatever. Rents are totally out of control! If the area with the train has access also to a downtown, expect bidding wars, which is what is happening in my area now.
My oldest daughter just bought a condo in some godforsaken area in Brooklyn that was appraised at $490K but she got into a bidding war and wound up paying $600K. Preposterous! For Brooklyn (if you walk 2 to 3 blocks outside her area you are taking your life into your hands).
I always knew I was going to retire in Florida. If you go on the Atlantic side, you will find nice condos for under $100k. I had a contract on a Vero Beach condo for only $65K two years ago but that deal fell through.
The Gulf side, however, is where all the action is. Two years ago we priced a condo near Sarasota at $140K. We went back this year to buy it and the price had jumped to $170K. Go figure. The longer we waited the higher the price. We paid cash, and the total carrying costs for the unit is roughly $600 a month (HOA fees, electricity, internet, insurance). That's $7200 a year. To rent for 3 winter months runs between $2500 to $3000 a month, plus a non-refundable $500 dog fee. Plus $100 a week cleaning fee, yada, yada, yada. So yes, it's better to own than just rent for the 3 months (plus we get to use the condo all year long, even in August!)
You have to realize that there's a bunch of Baby Boomers doing the same exact thing you are doing. Thankfully, as we sell, we have buyers. But as we buy, we have competition. Even though I was already in contract, my broker was offered a bribe to get me out of my contract because the briber loved my condo and it's fantastic water view. Yup! It's tough out there.
Good luck!

Linda Myers said...

This would be a good time for us to sell our place near Seattle, but we love living there ourselves. We've got a winter place in Tucson - a park model in a 55+ RV resort - that suits us fine for half the year. We know we're lucky.

Barb said...

As someone who lived in DC for a very long time as a family with one income, I do have some thoughts on this. First look at the total cost of living there, not just the real estate. We had one car for four of us, with teenagers, low food costs because of massive competition, and you can do a free thing including concerts for years without repition. Other cities may be similar.this is the first time I've lived in a true outer suburb in my life and I love my home but talk about culture shock!

The other thing to consider is later costs and lifestyle. If you had to hire out all the work of lawnmowing, gardening, home repairs and so in, how would that impact the finances. And that doesn't take in all the "what if your arthritis gets worse-will you build a ramp" kind of situation.

Barb said...

As someone who lived in DC for a very long time as a family with one income, I do have some thoughts on this. First look at the total cost of living there, not just the real estate. We had one car for four of us, with teenagers, low food costs because of massive competition, and you can do a free thing including concerts for years without repition. Other cities may be similar.this is the first time I've lived in a true outer suburb in my life and I love my home but talk about culture shock!

The other thing to consider is later costs and lifestyle. If you had to hire out all the work of lawnmowing, gardening, home repairs and so in, how would that impact the finances. And that doesn't take in all the "what if your arthritis gets worse-will you build a ramp" kind of situation.

Tom said...

Pam, thanks for your good advice, and Barbara, thanks for your good perspective. Cindi, we now know that a bunch of Baby Boomers are at least thinking about doing the same thing we're doing, because all our friends are suddenly very curious about our next move. But it won't be to Florida. I like to vacation there in the winter; but I can't get B to step foot into the Sunshine state.

retirementreflections said...

Hi Tom - Your experiences of buying and selling homes is the same as mine (except that I have bought/sold ten houses...two as investments). This post and its comments offers some great insights and food for thought.
Donna www.retirementreflections.com

Anonymous said...

We faced this dilemma about 4 years ago. There is no utopia. However, we decided on a rural area of northeast North Carolina. We downsized over 1,000 square feet and moved into one level. We bought new so the roof should last longer than me. We are 30 minutes from Norfolk. 40 minutes from Virginia Beach. 45 minutes from the Outer Banks. About 10 miles north in Chesapeake is a movie theater, Wal Mart, Target, Home Depot, etc. Our church, doctors, and dentist are in Chesapeake too. You name it….it is here in the Tidewater area of Virginia....well...no big time sports. Taxes however made us decide to drop a couple of miles below the VA border into NC. Housing prices here haven’t gone up much but they are very reasonable compared to Washington, DC where some of our children live. A lot less traffic too! Uber drivers are starting to operate. I didn’t see any snow last winter. Of course if you want to walk to Virginia Beach or the Outer Banks beaches prices will double/triple.

Barbara Torris said...

This is the dilemma that a "footloose" retiree faces. Where to go, how much does it cost and will I be happy after I have taken the leap? If there was a hard and fast rule I would be writing a book and it would sell like hotcakes.

However, the old saying "home is where the heart is" holds a lot of truth. Honestly, I think that finding the location that a person loves is the key. Then work from that point outward. Location is more important that anything. The only thing is finding something that is affordable. If you are where you want to be, then you will be able to compromise and make what you find your dream retirement home.

What do you think?

Anonymous said...

Tom, for years I've been reading a subscription based magazine called 'Where to Retire'. Here's the link: http://www.wheretoretire.com/

Each month they meticulously go through some of the top retirement locations breaking down housing costs, taxes, things to do, weather conditions as well as interview and highlight people who have already moved there. I found it to be very helpful in my search.

Again, best of luck. Enjoy the ride. These are the best years of our lives!

stephen Hayes said...

During the housing crisis our home lost 50 percent of its value. It's just now returning to what we paid, but if we sold it today, with all the expenses involved, we'd lose money. Fortunately, we don't plan on moving anytime soon.

Anonymous said...

Vancouver Washington has the highest rent increases if one can even find a rental and home prices have soared ridiculously for what is offered..Only king county (seattle is higher) but unlike Seattle family living wages are not here, who wants to live here where you have to commute to Portland pay income tax in a state that voted for a governor who had to resign from his position, lead in water in schools, racism, no jobs not I said the spy!!!!!!!!!!!!!!!!! This town has grown so big, crime and no jobs are here, schools are great public and private but who are the buyers of a $400,000 starter home, people from out of state who flip them and make profits not local residents, it is a lovely area, having lived here since 1978 when you actually got a great deal for a one level home with 1 1/2 bathrooms, 3 bedrooms, great schools, etc..NOT ANYMORE..BUT CONSIDERING YOU CANNOT BUY ANOTHER HOME IT IS NOT GREAT FOR PEOPLE WHO HAVE SAVED FOR YEARS TO BUY A HOME AND ARE TOTALLY SCREWED OUT OF ANY MARKET HERE...who wants when they are in their 60 and 70 age level a 3,000 sq. ft home anyway??? Not I said the spy!!!!!!!!!!!!!!!!!!!!

Madeline Kasian said...

Well, it is hot in summer, but we love Arizona. You can still get a lot of house for your money here, and our property taxes are very low compared to the rest of the nation.We pay $1800 a year on a 2400 square foot house with a pool! There are many many amenities,outdoors activities, you are within 2 hours driving of interesting mountain towns where it cools off in summer, and we have lakes, botanical gardens, and places to hike. There are many Centers for the Arts in all our towns,..we've come a long way culturally since I oved her ein 1984. We have major league teams, and 9 months of the year weather is awesome! Three months ( like now) it's hot. But today I have my monthly INDOOR card game with friends,Ken (DH) is organizing our family photos..we swam in the morning and will swim again tonight. I get sticker shock just listening to some of our family and friends' property taxes..we could not retire if our taxes were $8000 a year!! Anyway--Arizona is beautiful! (4 hour drive to Mexxco beaches and 5 1/2 hours to San Doego.)

Rita said...

I'd recommend the Seattle area. Lots of culture, colleges, a nice farmers market, good medical facilities, progressive area. However, it rains a lot here.

Still the Lucky Few said...

Wonderful information and advice. I'm glad I waited so long to comment! I agree with people who say finding the perfect location is the most important, but I worry about those who seem committed to owning and/or living in a large house. My experience is that you simply don't need a large home when you retire. And you should be careful to buy something that is on one level. Our health changes, our interests change, so everything should be carefully considered. It's a major life change!

Unknown said...

Hi Tom,
Your comment about Charleston caught my eye as family live in Summerville, Just about 30 mi inland from there. It's a nice town. We recently bought a home at Holden beach, NC on the intercoastal wAterway, which is about 3 hrs north of Charleston and centrally located between Myrtle Beach(golfing and shopping, entertainment and many nationally known acts) and Wilmington, where many TV shows and movies are filmed, with a 40 min drive to either of those. The prices are very reasonable on the mainland side of the intercoastal waterway. You can get a stick built home for under $200k very mild winters and if you want some winter weather occasionally, the mtns of NC have ski slopes and are over 3000' in elevation. They are a 4-5 hr drive from the coast. Our retirement is approaching with 4 yrs and 7 yrs for us respectively. Looking forward to the next phase. Love your blog!

Gary E. said...

Your friend's general comment about owning being cheaper than renting may be right (although there can be market circumstances where this does not have to be true). But, I find his statement that he can own a town home for 1/4th the cost to rent it to be highly unlikely. I've done this analysis myself and found rental in a competitive rental market to be only a small amount more expensive than ownership (the owner can do this becuase he is also getting the benefit of appreciation). When maintenance headaches, taxes, HOA dues and special assessments, insurance claims and all the other pains of ownership are considered, plus the benefit to go anywhere you want for however long you want that renting offers, renting leisure properties is for me the best choice.

Rian said...

Interesting post... even the comments. We've been in our home for 30 years and are not ready to move. But my daughter has been after us to start *thinking* about down-sizing and possibly moving to the Hill country of Texas where she lives. It's not on the agenda now, but could be in years to come. Maintenance of a 4 bedroom home in North Dallas could be an issue in later years. Traffic is a bit of a hassle, but there's pretty much easy access to doctors, shopping, etc. We both have family in New Orleans (our hometown), but even though we love the city (and our family), can't imagine living there.

Lynne said...

I'm retiring in 10 days. I've considered where to move once I downsize from my farm, which for now is both paid off and income producing. I can't make up my mind. Ultimately I may end up doing what a friend did-selling, putting anything I refuse to part with into storage, and loading up the horses and hitting the road for a year or two. Give different areas a test drive.

I may just end up moving to Ocala as a home base and taking frequent trips out of state to escape the summer heat. I have friends there and FL is tax friendly to retirees. And winters there are much milder than anywhere up north of FL.