Is now the time for retirees to sell their houses?

        If you read the paper or watch the news, you can’t avoid the scary stories about the housing market. As I have said before, if you sold your home three years ago, chances are you sold at the top of the market (in fact, much of this blog is a repeat of what I have said before). Your home probably sold at a higher price than any comparable home in your neighborhood had ever sold for before — or since.

        If you follow Wall Street, there is now reason to believe that the market is at its low point. Most of the major builders have taken substantial write-offs on their remaining housing inventory and land, and have effectively stopped any additional building in an effort to stabilize inventory. In fact, the market has rewarded those companies that have faced the music and cut their losses, selling assets while focusing on returning to positive operating incomes. In short, it seems that Wall Street seems to think the worse is over. Does this mean you’re likely to see housing values return to 2005 values? No, it probably means prices are stabilizing (which means at a minimum you shouldn’t expect to see your house appreciating for the next several years).

        The home market for this past year has been dominated by: Value. Homes that offer the best values, or best prices, sell first. Houses that are priced unrealistically are quickly being passed over by the potential buyers who have now returned to house shopping in hordes (they’re out there; they’re just much more patient). For home sellers who didn’t make the mistake of buying into the market in 2005, it is pretty easy to sell at 2004 prices, or even 2003 prices. All they lose is what they never gained. Sure, one or two nearby houses sold for a lot more in 2005 than what today’s typical home owner can expect to get for his or her castle this year — but, what no one knew when those two homes sold was that they were the last to get that high price. And, very possibly, the last for a long time.

        No one can accurately predict when home prices will begin rising again. But The New York Times found someone who can give seniors a good look at what part of the future holds — his point is that prices aren’t going up in 2008. If retirees are considering selling in the next two to three years, the price they get right now, even with discounting their home in a market with way too much inventory and way too few buyers, is probably close to the price they will get in 2009 or 2010. Plus, they save the cost of maintaining a home that keeps losing value, and can put the money they get for it to work for them.

        Here is what The New York Times reported after interviewing Christopher L. Cagan, director for research and analytics at First American CoreLogic, a mortgage industry research firm in Santa Ana, Calif.:

        “He studied two databases with information on 58 million mortgages and sees a wave of mortgage resets moving through the system, first the mortgages with low teaser rates, followed by subprime loans and finally, as the decade comes to a close, the loans to homeowners with good credit.

        This pig-through-the-python transition is not enough to hurt the overall economy — about $112 billion will be lost, he calculated — but it is a world of pain for the households involved.

        Almost all of the teaser loans issued this decade — those mortgages offered for less than 3 percent — have reset in the last two years. Rates for most of the homeowners with good credit who obtained adjustable-rate mortgages during the boom years of the housing market will reset from 2008 to 2010. Mr. Cagan said he thought only 7 percent of these loans would default because of the reset.

        The bulk of the subprime adjustable-rate mortgages, those made to people with less-than-sterling credit reports, have already reset or are resetting this year. About 12 percent of the subprime mortgages will default, he predicted.”

        There are going to be three kinds of sellers in the market over the next few years:

1. The realtors and real estate investors who bought in 2004 and 2005 with the idea of quickly “flipping” or reselling the home to make some money. They have to try to get out at their original investment price, but nearly all of them are already underwater on that investment. Many will see their homes languishing in bankruptcy actions monitored by banks that will also be trying to get a price close to what was loaned — although that is just as much of an uphill struggle as would be trying to sell at 2005 prices.

2. Those very unfortunate people who bought in 2004 or 2005, right when home prices hit their peaks, and who have to sell now because their mortgage has increased beyond their means, or because they have to relocate to another city. Some of these people can sell their homes below cost and cover the losses with their future earnings, since many of them are gainfully employed.

3. People who have held their homes for several years, and who, when selling at 2003 or 2004 prices, will still see a huge return on their home because of the unprecedented increase in home values from 1998 through 2005. Their homes won’t be selling at what a couple of neighbors might have gotten at the very peak — only a couple of people got those highest prices, and most of them turned around and paid peak prices for another home, thus, gaining virtually nothing for their timing. But you can still sell your home for far more than if you would have sold it five years ago.

Retirement Dreams

        The question facing today’s retiree looking to move to an active adult retirement community like a Del Webb community, especially if they would like to make a change in their life, is whether selling into this difficult housing market will be more or less costly than selling into whatever the housing market will be like in two or three years. Looking at the large amount of inventory, there are very few realtors who are saying, “I’d wait until next year because I believe prices are going to jump back up.”

        In other words, don’t expect the kind of gains we’ve seen on residential real estate in the past. It’s always a tough decision to sell your house. But those folks who win, whether they sell now or sell later, are in a much better position than the people who got caught up in the excitement three years ago only to discover there is no way to get out at the price they paid to step into the market.

        It’s always difficult to move from a home that you’ve built a life in. As mature market experts, we owe it to the retiree population to paint a balanced picture of the housing market — as opposed to the panic that the mainstream media likes to create. Is the housing market bad? Yes. Is it the end of the world? No. Should seniors delay their retirement dream move waiting for a sunnier day? Probably not, unless they want to wait another ten years.



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