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More of the Same... House Equity losses cause retirement delays
Old 08-03-2011, 09:07 AM   #1
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More of the Same... House Equity losses cause retirement delays

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Declining home equity is a problem that not only can force would-be retirees to keep working, it can complicate their eventual retirement in a range of ways. Many retirees, for example, have long counted on the proceeds from the sale of their homes to help pay health care costs and long-term-care expenses that they'll inevitably face.
Home equity losses hitting retirees hard - USATODAY.com


I guess I am not surprised... there is much in the news about this...

But I still am a little flabbergasted that people saw their house as a significant source of money for retirement...

The only part that our house ever played in retirement... was a place to live with the goal of having it paid off by FIRE (i.e., out of debt).


I suppose I can relate a little. I can understand how it may affect plans to relocate.


We have a goal of downsizing/simplifying our home (not financially motivated). The housing situation could cause us to change our timing a little. But, I am going to proceed to prepare for a sale and try anyway (in the next 18 months). However, I am prepared to delay if things do not work out to satisfy us since there is no reason other than our desire to do it.
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Old 08-03-2011, 09:15 AM   #2
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But I still am a little flabbergasted that people saw their house as a significant source of money for retirement...
Take a look back at the pre-2008 "Hi, I am..." forum introductions. That should de-flabbergast you...
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Old 08-03-2011, 09:25 AM   #3
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But I still am a little flabbergasted that people saw their house as a significant source of money for retirement...

The only part that our house ever played in retirement... was a place to live with the goal of having it paid off by FIRE (i.e., out of debt).
I'm with you.

Our home is an expense since we need a place to "hang our hat". Buy or rent, there is no difference in that regard, IMHO.

We never looked at it as an investment or part of our investable assets to fund retirement. However, it is part of our gross estate net worth, to be distributed upon our passing.

I can see where it may be a problem to a retiree who wishes to downsize or move (to be close to family, or better weather), but those moves are wants/desires rather than needs if you look at it as we do.

But than again, people get paid for their writing (vs. those on us on this forum that just do it for entertainment )...
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Old 08-03-2011, 09:59 AM   #4
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Originally Posted by chinaco View Post
Home equity losses hitting retirees hard - USATODAY.com

I suppose I can relate a little. I can understand how it may affect plans to relocate.

We have a goal of downsizing/simplifying our home (not financially motivated). The housing situation could cause us to change our timing a little. But, I am going to proceed to prepare for a sale and try anyway (in the next 18 months). However, I am prepared to delay if things do not work out to satisfy us since there is no reason other than our desire to do it.
This is also an issue for us. We want to sell our (paid for) home and relocate, but it is valued at less than we paid for it (new home 4.5 years ago), so like many others (retired or not) - reluctant to put it on the market, and sell at a loss. It's not part of our retirement income scenario, but taking a loss goes against the grain (another way of looking at your thread title ...home equity losses hitting retirees hard), and retirement relocation has been put on the back burner for now. We are also tentatively looking at about 18 months out, but will postpone further if the housing markets aren't showing improvement.

Guess you'd have to say that "we" are part of the housing problem and not a part of the solution. Until the housing market stabilizes, and people that want to move start heavily outnumbering those forced to move (foreclosures), there will be no real quick improvement...
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Old 08-03-2011, 10:02 AM   #5
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But I still am a little flabbergasted that people saw their house as a significant source of money for retirement...
Just "for retirement"?
Why, you could unlock those lazy dollars in your house that are just sitting there doing nothing, and take those vacations you always wanted, buy that new car(s) you deserve, live the high life, have it all! PARTY ON!

Do you ever get the feeling that the small subset of us LBYM people must have come from a different planet?
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Old 08-03-2011, 10:11 AM   #6
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Here's a note I made in May 2009: "According to a survey by Bell Investment Advisors of Oakland CA, 60% of baby boomers have put off retirement by 1-4 years because of the recent plunge in the stock market."

How many employed people does this represent? How many jobs that would otherwise have become vacant and been filled by someone who's still in the unemployment line? What would the UE rate be without these retirement delays caused by the real estate and stock market crashes?
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Old 08-03-2011, 10:18 AM   #7
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I paid cash for my present home in 2003. The house is now valued at about $150,000 less than my purchase price.

But, like most of the LBYM crowd, I did not factor in house equity as part of my assets. In that sense, that is good. But it still does not remove the stinging losses on paper.



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Old 08-03-2011, 10:26 AM   #8
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But I think those folks delaying retirement 1-4 years were the same folks who had accelerated their plans 1-4 years due to 2007 market peak and their home equity having taken off so much by 2007.

When I think of home equity, I always remember the folks screaming at us crazy people in 2005 who were selling our homes to go full-time RVing. Many nay-sayers declared they would never NEVER sell their home in these market conditions and sell such a sure appreciating asset like a house. Us home sellers were just nuts! Well it didn't take to long for things to turn completely around, did it?

I recently drove through some Boise outlying suburb areas, and there are an amazing number of developments with super fancy front entrances and landscape presentation along the road, and behind - empty, or mostly empty. Are these places called "ghost developments" now? Amazing signs of a fast boom gone bust. Oh these fancy gardens, entrances are still being watered and maintained, hiding the emptiness behind, so I guess they are still hoping.....

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Old 08-03-2011, 10:32 AM   #9
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Originally Posted by chinaco View Post
Home equity losses hitting retirees hard - USATODAY.com


I guess I am not surprised... there is much in the news about this...

But I still am a little flabbergasted that people saw their house as a significant source of money for retirement...
Weren't whole investment strategies built around this? Wasn't leveraging your money and building a portfolio of real estate properties what "Rich Dad, Poor Dad" all about??
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Old 08-03-2011, 10:35 AM   #10
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...you deserve...
The two words that lead to a lot of financial heartache with today's folks...

I may want a lot, but I deserve nothing...
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Old 08-03-2011, 10:40 AM   #11
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The house we built in 2003 is worth more than we paid for it, but that might be a result of our building it on the cheap rather than it increasing in value. But it is, and will always be, a use asset. Paid for or not (and ours is mortgage free), it only matters what it is worth when we get ready to sell it.
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Old 08-03-2011, 10:58 AM   #12
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Originally Posted by fritz

This is also an issue for us. We want to sell our (paid for) home and relocate, but it is valued at less than we paid for it (new home 4.5 years ago), so like many others (retired or not) - reluctant to put it on the market, and sell at a loss. It's not part of our retirement income scenario, but taking a loss goes against the grain (another way of looking at your thread title ...home equity losses hitting retirees hard), and retirement relocation has been put on the back burner for now. We are also tentatively looking at about 18 months out, but will postpone further if the housing markets aren't showing improvement.

Guess you'd have to say that "we" are part of the housing problem and not a part of the solution. Until the housing market stabilizes, and people that want to move start heavily outnumbering those forced to move (foreclosures), there will be no real quick improvement...
"Loss aversion" has a powerful impact on people even if it makes economic sense to sell at a loss and buy at an even lower cost somewhere else. Waiting for prices to raise, may cost more money as the relocation area may have appreciated even more. I understand, though as I would feel the same. I had a modest home built in 2003 in a low cost area. The fortunate thing about that is I could lose 80% of the value of my home and be a lot better off than someone losing 20% in a high cost location.
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Old 08-03-2011, 11:08 AM   #13
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This is also an issue for us. We want to sell our (paid for) home and relocate, but it is valued at less than we paid for it (new home 4.5 years ago), so like many others (retired or not) - reluctant to put it on the market, and sell at a loss. It's not part of our retirement income scenario, but taking a loss goes against the grain (another way of looking at your thread title ...home equity losses hitting retirees hard), and retirement relocation has been put on the back burner for now. We are also tentatively looking at about 18 months out, but will postpone further if the housing markets aren't showing improvement.

Guess you'd have to say that "we" are part of the housing problem and not a part of the solution. Until the housing market stabilizes, and people that want to move start heavily outnumbering those forced to move (foreclosures), there will be no real quick improvement...


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"Loss aversion" has a powerful impact on people even if it makes economic sense to sell at a loss and buy at an even lower cost somewhere else. Waiting for prices to raise, may cost more money as the relocation area may have appreciated even more. I understand, though as I would feel the same. I had a modest home built in 2003 in a low cost area. The fortunate thing about that is I could lose 80% of the value of my home and be a lot better off than someone losing 20% in a high cost location.

I agree with Mulligan...... the loss has happened and is real... you just have not monitized it yet... there is nothing to say that the house will go back up in value... and if it does at what rate..

I remember in an earlier crisis when my sister had the same issue... they had a loss on their house but wanted to move to a better house... and they said 'we will wait until the house price comes back and then buy'... I said 'what makes you think that the house you plan to buy will not go up faster than your house?'....

I think that people seem to think that if they do not sell a loss has not occured.... to me this is strange thinking... the loss has occured, BUT you might get a gain to offset that loss... but that gain could be at another location.... (think stock... you have a loss on XYZ company, sell and invest in ABC... ABC takes off a lot more than XYZ... would it have been smart to keep the money in XYZ so you did not have to recognize (monetize) the loss)
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Old 08-03-2011, 11:12 AM   #14
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"Loss aversion" has a powerful impact on people even if it makes economic sense to sell at a loss and buy at an even lower cost somewhere else. Waiting for prices to raise, may cost more money as the relocation area may have appreciated even more. I understand, though as I would feel the same. I had a modest home built in 2003 in a low cost area. The fortunate thing about that is I could lose 80% of the value of my home and be a lot better off than someone losing 20% in a high cost location.
We were not going to buy, but rent - possibly for the duration, but the uncomfortable drop in housing prices (and current accompanying financial sting that comes with a present home sale), put our plans on temporary hold.
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Old 08-03-2011, 11:15 AM   #15
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"This is also an issue for us. We want to sell our (paid for) home and relocate, but it is valued at less than we paid for it (new home 4.5 years ago), so like many others (retired or not) - reluctant to put it on the market, and sell at a loss. It's not part of our retirement income scenario, but taking a loss goes against the grain (another way of looking at your thread title ...home equity losses hitting retirees hard), and retirement relocation has been put on the back burner for now. We are also tentatively looking at about 18 months out, but will postpone further if the housing markets aren't showing improvement.

Guess you'd have to say that "we" are part of the housing problem and not a part of the solution. Until the housing market stabilizes, and people that want to move start heavily outnumbering those forced to move (foreclosures), there will be no real quick improvement..."

We currently have our home on the market at a very attractive price. After a month no offers. We desperately want to move out of MD to lower expenses. Our home is paid off, but I never considered it an investment, only a lateral ability to escape.
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Old 08-03-2011, 12:16 PM   #16
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This is also an issue for us. We want to sell our (paid for) home and relocate, but it is valued at less than we paid for it (new home 4.5 years ago), so like many others (retired or not) - reluctant to put it on the market, and sell at a loss.

If you figure out how much it would have cost to rent an equivalent house for all these years, and compute total costs either way, it might make you feel better about accepting a lower price for your home. I am thinking that the breakpoint at which one is "ahead" for having purchased the house, sometimes can be lower than the purchase price.

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We currently have our home on the market at a very attractive price. After a month no offers. We desperately want to move out of MD to lower expenses. Our home is paid off, but I never considered it an investment, only a lateral ability to escape.
My sincere sympathies. The housing market in some areas is just abysmal. There just don't seem to be as many qualified buyers as there are houses on the market in some areas, so even houses that are very good deals don't always sell. I am so thankful that my present home is in an affordable area that I like.
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Old 08-03-2011, 01:52 PM   #17
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Just "for retirement"?
Why, you could unlock those lazy dollars in your house that are just sitting there doing nothing, and take those vacations you always wanted, buy that new car(s) you deserve, live the high life, have it all! PARTY ON!

Do you ever get the feeling that the small subset of us LBYM people must have come from a different planet?
My neighbor did this. House appreciated, they refinanced and took some money out to supplement their lifestyle and while husband went to school. House appreciated again, wash and repeat. Did this 2 or 3 times over the course of 3 years. Never got the lifestyle costs under control. 2008 hit. Husband has now left her and the kids, partially due to money issues. She is stuck with a mortgage payment she can barely cover, with a house underwater. Yet she still hasn't lowered the lifestyle! She was depressed about her finances... So she took the kids on vacation and blew a thousand bucks in a weekend!
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Old 08-03-2011, 01:58 PM   #18
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But I still am a little flabbergasted that people saw their house as a significant source of money for retirement...

We have a goal of downsizing/simplifying our home (not financially motivated).
We also never understood the crowd that wanted as much house as they could afford, some of our friends wondered why we didn't. Our house is just over 6% of our net worth, and our next house will be smaller too, though it may/may not be less expensive. We just want a small (1500sqft ±), good quality (well appointed) house.

And I still watch new episodes of House Hunters and the like on HGTV and see young DINKs buying 4000sqft+ homes at the very top of their mortgage approval limits, if not more. I don't get it...
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Old 08-03-2011, 02:34 PM   #19
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And I still watch new episodes of House Hunters and the like on HGTV and see young DINKs buying 4000sqft+ homes at the very top of their mortgage approval limits, if not more. I don't get it...
But - but - we deserve it ...
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Old 08-03-2011, 03:02 PM   #20
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The value of our home is worth more than we paid for it a decade ago... But the increase is nothing to brag about. But I guess I can't complain when I see what happened to others.
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