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The apparently never-ending rise in housing prices is affecting one demographic in particular -- the growing number of Americans in retirement. It’s a time in life when a person should be living in comfort with a nice buffer of money, not struggling to afford the home they want to live in.
There are numerous reasons for how we got to this point. Thankfully, there are some moves retirees can make to reduce the impact of the situation.
Steady income but rising prices
At heart, the problem is rather straightforward -- home prices have climbed relentlessly in many regions, but unfortunately retiree income tends to stay level. In other words, home ownership is becoming rapidly more unaffordable for seniors.
It’s not only the price tag on the residence. With the Federal Reserve’s steady increasing of its benchmark Federal Funds rate, interest rates for nearly every type of loan have risen commensurately. Mortgages are more expensive than they were only a few short years ago.
The cost burden is also in force for retirees that already own the home they live in. There are always maintenance expenses to be paid, and the older a house, usually the more it needs to be fixed and kept up. Meanwhile, property taxes can eat holes in a retiree’s budget.
High competition and prices for smaller homes
Downsizing is a common desire for retirees. The family home is too big and empty for a parent or two entering their golden years; the kids are long gone, and there’s little use for all that extra space -- not to mention the effort and expense of maintaining it.
The classic solution is to sell that cavernous pile, then buy a smaller home more suited to a duo (or single, depending on your circumstance).
But not so fast! Prices of modest dwellings -- or “starter homes” as many call them -- have been rising at a quicker clip than those of larger, higher-end residences in most American markets, according to a report issued earlier this year by Zillow.
There are numerous reasons why, not least because the real estate boom has made such housing the only affordable option for many budget-strapped buyers. So these days retirees who sell their family homes in the hopes of downsizing are slipping into a market with a higher number of rival buyers, and prices on a fiery trajectory upward.
What retirees can do about rising housing costs
Fortunately, there are good strategies that can be employed by retirees facing rising housing costs. Here are four:
Rent a home -- Instead of downsizing, why not sell your family palace then rent a home? Yes, rents can rise, but such increases are capped in the many regions and municipalities with some form of rent control. Meanwhile, you won’t need to pay maintenance expenses or property tax on your new home.