The increase in median home prices will be welcome news to American baby boomers who are counting on their homes to help support them during retirement. Many have had to rethink their plans following the recession and mortgage crisis that left homes in some regions worth less than their owners expected.
The median price of existing homes sold around the nation in September was up 5.6% from the previous year, even though the overall pace of sales remains below the level of September 2013, according to a report out Tuesday from the National Association of Realtors.
The number of existing home sales, which include single-family homes, townhomes, condominiums and co-ops, was down about 1.7% from the 5.26 million unit pace of September last year but still represents the highest pace of any month so far in 2014.
But overall, traditional buyers are facing less competition from investors searching for available homes, the NAR said. And with the pace of sales down, it remains to be seen whether there will be an adequate pool of buyers for all the houses that baby boomers will be looking to sell.
MYRIAD SOLUTIONS
Advisers are offering myriad solutions to clients who may be looking at homes that are worth less than expected, including renting out their large homes and moving into smaller ones, taking out home equity loans, slowly selling homes to their children and in some cases even reverse mortgages.
“The fact is a home is still the largest balance sheet asset for the average American,” said Michael Anderson, a partner and senior wealth manager at True North Advisors in Dallas. “For seniors who need to access that capital, there are a number of options beyond simply selling.”
For one couple who were intent on passing along their home to their children but found themselves in a position where they needed more monthly income than their Social Security and investments could offer, setting up an installment sale to their children was the right move, Mr. Anderson said.
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Under the arrangement, the children paid a monthly sum to their parents for the rest of their lives and at their death the balance of the house will be gifted to the children, he explained.
Gustavo Vega, managing director of Vega & Oprandi Wealth Partners in Miami, said it's not uncommon for clients who didn't do enough to prepare for retirement to rely on the equity in their home to support them in their golden years.
Being in Florida, which Mr. Vega called ground zero for the real estate crisis, he has many clients who lost a lot of their net worth in 2008-09. For some clients, homes they expected to be worth $1 million are worth half that today. But selling is still the right move for some, he said.
“If you are losing money on the house and holding on to the carrying costs of owning it, including taxes and homeowners insurance, then you have to view as a business decision whether it makes sense to cut the asset,” he said.
REVERSE MORTGAGES
For clients who are at least 62 years old, reverse mortgages are another method of tapping equity in the home to live comfortably during retirement. Since 2010, reverse mortgages have been federally insured and allow borrowers to access their assets without having to move out of their homes. Payments aren't due until the homes are sold.
The number of the Department of Housing and Urban Development's Home Equity Conversion Mortgages, which make up the majority of the nation’s reverse mortgages, increased for the first time in 2013 since peaking in fiscal year 2009 at 114,692 loans. About 60,091 loans were made in fiscal year 2013, up from 54,822 in 2012. Figures for the full 2014 year, which concluded at the end of September, aren't yet available.
“Reverse mortgages are especially attractive now because interest rates are so low,” Mr. Vega said. “It's sort of our last resort, but it can be very useful.”
He points out to clients that with a reverse mortgage, the children who inherit the home do so with a liability on it.
“But if it means you can have more financial independence when you retire, that's the first objective,” he said.
Daniel P. Lash, a partner with VLP Financial Advisors in Vienna, Va., said his firm uses a below-market sell price as an assumption in its financial plans to determine how this asset will impact clients trying to reach their goals.
“Helping clients manage expectations of the value of their house is crucial to their overall retirement planning,” he said.
Home sellers also may be helped by planned changes that will make it easier for home buyers to qualify for federally-backed mortgages that require less money down, according to a statement Monday by Melwin Watt, director of the Federal Housing Finance Agency.
