WSJ: A Retirement Wealth Gap Adds a New Indignity to Old Age

[braumeister]

an apartment building in Manhattan

In fairness, that's another planet.

 

[pj.mask]

I work very hard to get where I am. I always studied and always read all the school book chapters and did all my homework.

I’m so lucky with who interviewed me for megacorp at college. I’m fairly confident his sympathy for my story is how I got on there and have earned probably 1/3 more than the average student I graduated with.

I’m also very lucky that although my siblings and I grew up under the same circumstances - I never had so much envy for the students who had money (new cars in high school, etc) that it tainted my outcome or an aversion to social interaction that blocked me from meeting people and taking opportunities. I come from a large family and these are not hypothetical.

I’m also lucky that I dated this girl in high school. The relationship ended badly but her father taught me about about investing and saving. My father lived paycheck to paycheck and I believe he was a big influence as to why I live on half.

People who believe that they got where they are only by hard work seem ignorant of how their ability to do that hard work is luck. Nobody with mental retardation just decided to be smart the same as nobody with other mental limitations (on ability or learn or commit to work) used your thought process to be successful. Luck is the opportunity and capability. Hard work is how you get there.

 

[RenoJay]

Not sure if I saw a link to the article in the original post. Here it is:

https://www.wsj.com/articles/the-battle-of-the-pickleball-court-retirement-wealth-gap-disrupts-old-age-1538666948

Before anyone gets too offended by the article, please note most of the article is referring to the SF Bay Area. I grew up there. There is definitely an element of luck with when you buy a house. Had my parents stayed in their former location, their home equity would be around 1/10th of what it is because of their move to the bay area. They had no idea 40 years ago that their move would make such a big difference in their wealth. And I have friends there who have stretched to buy a first house. But when a layoff occurs, they need to sell since housing affordability is a stretch for even well-paid professionals there. Given that a small negative move in home prices can wipe out their down payment, then I'd suggest again that the luck of a well-timed house purchase can be important.

I'm not trying to take anything away from all of us here who have used great discipline for saving our entire lives. I am pointing out, however, that things are different on the expensive coasts and people are forced to take a gamble of a much bigger proportion when they decide to buy a house in an expensive market vs. a more moderate market.

Another thing I'll add is that much of the article is about a debate over a $300k pickleball court at a 55+ community. (The articles poses the "haves" as for the court and the "have nots" as against.) I'm fortunate to have tons of money, but my own HOA tried to buy a golf course a few years ago, and I absolutely sided with those who thought it was a stupid idea. Fortunately we defeated the "buy the course" crowd, but it was a similar dynamic where the community was truly torn apart for about a year. The good news is that the golf course was purchased by a group of private individuals and those who wish to use it may do so for a fee.

 

[Fedup]

I’m having problem with both terms in the same sentence, luck and well timed. One is luck and one is control. Oxymoron perhaps.

 

[razztazz]

"Well timed" means you got lucky. You can think you know it all and have decided a certain time is the best and most lucrative time to sell but then something can go wrong and screw you despite being smarter than all the powers of the universe except the ones you weren't. You can also be forced to sell at what appears to be the worst possible time but then something happens and you make a lot of money on it

One has brains, smarts, will, planning, understanding and one doesn't. Both are defined ultimately by the same forces. That is the genetic material of all decisions.

 

[RobbieB]

I couldn't afford a home in the "Bay Area", so I went "over the hill" to the central valley.

Yup, lotta driving.

 

[Fedup]

Well if it’s well timed purchase then I should have bought two houses. I failed on that too. Both time when my husband and I bought our homes, we have no idea how it’s going to turn out.

 

[NW-Bound]

Not sure if I saw a link to the article in the original post. Here it is:

https://www.wsj.com/articles/the-battle-of-the-pickleball-court-retirement-wealth-gap-disrupts-old-age-1538666948
...

The thread is getting long, and newcomers may not have the chance to read through it all.

In post #58 of this thread, I posted a link to the same article, but reprinted on msn.com, for readers who do not have a subscription to WSJ.

 

[Scuba]

How about saying the current HOA fee is strictly to maintain the facilities that presently exist?



Newly built facilities like the fancy pickleball court would be financed by a new supplemental HOA fee and give only those who pay it the right to use those facilities.

The problem with this is that “maintaining the facilities” costs money. We live in an oceanfront building where units routinely sell for over $1M. Our common area furniture is now going on 16 years old. The furniture doesn’t get that much use but every realtor who walks clients through the property shows the common areas.

The condo’s reserve study did not include adequate funding to modernize and replace furniture in the common areas. IMO, all owners, whether they use these common areas or not (and I don’t), will benefit from and should pay for these improvements. There are others in our building who feel any expenditures for this purpose are a waste of money.

Facilities must be improved over time to maintain their value. And everyone in the development benefits from that sooner or later, or suffers from failure to remain competitive if that is the direction the HOA takes.

 

[braumeister]

The problem with this is that “maintaining the facilities” costs money.

Of course.
And the current HOA fee would continue to increase at the normal rate, just as it has in the past.

What they are talking about is a very large expense for a completely new facility, and that would be the purpose of the supplemental fee, which would also be subject to regular increases.

 

[pb4uski]

.... Facilities must be improved over time to maintain their value. And everyone in the development benefits from that sooner or later, or suffers from failure to remain competitive if that is the direction the HOA takes.

+1 Expectation change over time. Today's homes are bigger and nicer than similar "level" homes of 40 years ago.

A friend lives in an Association that has invested a lot of money in expanding and improving their recreational facilities to keep up with what members and buyers want and expect... that Association will likely thrive and property values will increase... while at the same time some residents will get priced out of their homes.

Our Association is hopelessly stuck in the past, will eventually become irrelevant and uncompetitive and property values will decline or not appreciate as much as neighboring more attractive properties.

It is all supply and demand.

 

[lucky penny]

Our Association is hopelessly stuck in the past, will eventually become irrelevant and uncompetitive and property values will decline or not appreciate as much as neighboring more attractive properties.

It is all supply and demand.

+1 If neighboring properties are nicer but more expensive, wouldn't some who are willing to pay more consider moving there?

A major factor contributing to the situation at Oakmont seems to be that most of the newcomers are much more prosperous than the original residents due to skyrocketing real estate values and owners who cashed out with big profits. It's a perfect storm for a clash between newcomers with lofty expectations and big budgets and long-time residents who arrived with more modest ones. That wouldn't be the case everywhere I think.

 

[NW-Bound]

The rising RE values can cause citywide conflicts that do not have to involve HOA's.

I happened to see some reports on how the rich mainland Chinese bid up properties in Vancouver, Canada, and were resented by the locals, including Canadians of Chinese ethnic. The newcomers, particularly offsprings of Chinese billionaires, are not discreet and like to flash their wealth.

 

[Fedup]

This is why we have different communities of development. Some have labels as luxury, some are not. Rich retirees should buy in the luxury village.

And for these people, the end result of a higher price of their homes are not doing them any good, unless they believe Tom Selleck on the reverse mortgage ad.

 

[Fedup]

The rising RE values can cause citywide conflicts that do not have to involve HOA's.

I happened to see some reports on how the rich mainland Chinese bid up properties in Vancouver, Canada, and were resented by the locals, including Canadians of Chinese ethnic. The newcomers, particularly offsprings of Chinese billionaires, are not discreet and like to flash their wealth.

I believe in some countries they now have higher taxes for the rich newcomers, like New Zealand, Australia, and some parts of Canada.

 

[MichaelB]

That wouldn't be the case everywhere I think.

Not sure. I think for most HOAs these spending conflicts are ongoing and never-ending.

One factor that often makes a difference is the age of the community - when it was built. Those that were built in the mid-90's still have many of the original owners, who are now leaving, either to nursing homes / assisted living or their "final resting place". New, younger people move in and they want community facilities that suit their needs. This leads to conflict that is difficult to resolve because there is so little common ground between the wants of a 50-60 year old vs the 80+ community. Money is part of it, but demographics also matter.

 

[RenoJay]

+1 If neighboring properties are nicer but more expensive, wouldn't some who are willing to pay more consider moving there?

A major factor contributing to the situation at Oakmont seems to be that most of the newcomers are much more prosperous than the original residents due to skyrocketing real estate values and owners who cashed out with big profits. It's a perfect storm for a clash between newcomers with lofty expectations and big budgets and long-time residents who arrived with more modest ones. That wouldn't be the case everywhere I think.

I live in a state that had a 60% crash in real estate values from peak to trough during the housing downturn. In good times, the nuevo-riche love to talk about amenities of an HOA. In bad times, they zone in like a laser on HOA fees, and HOAs with lower fees become much more attractive. Knowing this, at my vacation condo HOA (which consists of just four units) we've consciously agreed to keep HOA monthly fees low, and when something big needs to be done we will do a special assessment. I pity anyone who gets into a high-HOA fee facility now. In a couple years I think they'll regret it and the high fees will hurt their housing values.

 

[haha]

If one lives in a dynamic real estate area, smart behavior is different from if that same person lived elsewhere. Some places, and Seattle and Vancouver are very good examples, don't really have very much build-able land within a reasonable commuting distance. I have lived in Seattle since my early 30s, through incredible busts and many booms including today's. My favorite living place is a well managed apartment. But I felt that since I had only moderate means, not $20+millions, and I didn't want to be faced with living somewhere that would not suit me nearly as well, I needed to buy. Many of the things that home owners enjoy are at best neutral to me, but the long term reality on the ground was impossible to miss.

So real estate "wealth" is not always speculative, but sometimes just a place holder for you. It actually costs more in housing taxes, HOA, etc, but you have no real choice but pay up or move.

A detail: there are many places like Seattle with more land across a bay or lake. But as many people all over our country know it sucks to live on one side of a bridge and work on the other. That bridge will always become a nightmare to cross for longer and longer parts of any 24 hours. And Bellevue, our eastside, has also become highly urbanized, and just east of Bellevue lie mountains.

Vancouver BC has additional rocket fuel- it's the SW seaside, temperate corner of an otherwise cold nation, with a large sub-population that has ties to the burgeoning and nervous wealth of China.

Ha

 

[plsprius]

I think it's interesting that this HOA (Oakmont) didn't have a 5% limit on dues increases for "new" capital improvements (i.e., beyond maintenance and repair of existing items) without a majority vote of the membership. My HOA has that provision in the CC&Rs--probably these limits are more common in traditional condominium associations, vs. whatever they have at Oakmont.

That 5% cap would have easily avoided some of this problem...with the result that the rate of improvement projects would be slowed, at least until newer residents represented the majority. Some may think this is unfair, but that's part of HOA living.

By the way, I've read that about 1/3 of California residents live in a HOA of one type or another so this is a common issue. Maybe even higher in places like Florida?

 

[Fedup]

I live in a state that had a 60% crash in real estate values from peak to trough during the housing downturn. In good times, the nuevo-riche love to talk about amenities of an HOA. In bad times, they zone in like a laser on HOA fees, and HOAs with lower fees become much more attractive. Knowing this, at my vacation condo HOA (which consists of just four units) we've consciously agreed to keep HOA monthly fees low, and when something big needs to be done we will do a special assessment. I pity anyone who gets into a high-HOA fee facility now. In a couple years I think they'll regret it and the high fees will hurt their housing values.

You are right on this. I picked this housing development for its lowish HOA around here, my brother bought in nearby town has HOA 3.5 times mine. While high HOA didn’t hurt the housing value of his neighborhood but I personally wouldn’t buy there. For the same reason, I avoid condos. They have very high HOA fees comparing to the same SFH.

I like my fixed cost to stay reasonably fixed. No surprise in the future.

 

[Scuba]

+1 Expectation change over time. Today's homes are bigger and nicer than similar "level" homes of 40 years ago.



A friend lives in an Association that has invested a lot of money in expanding and improving their recreational facilities to keep up with what members and buyers want and expect... that Association will likely thrive and property values will increase... while at the same time some residents will get priced out of their homes.



Our Association is hopelessly stuck in the past, will eventually become irrelevant and uncompetitive and property values will decline or not appreciate as much as neighboring more attractive properties.



It is all supply and demand.

Yes this is already happening in our area. The condo complex down the street is about the same age, similar oceanfront location, etc., but has done major upgrades to their common areas and security, while our building hasn’t yet. The units down the street are about 20% smaller but are now selling more quickly and for higher prices than our building, despite their HOA dues being over 15% higher.

It’s hard for me to understand why owners in our building aren’t demanding that our HOA keep up with the competition. I guess they don’t see how this directly affects the value of their property.

If we hadn’t invested in a major remodel 3 years ago, we might consider moving, but we did and we love it so we are trying to motivate other owners to support positive changes.

 

[Souschef]

It’s hard for me to understand why owners in our building aren’t demanding that our HOA keep up with the competition. I guess they don’t see how this directly affects the value of their property.

I think, for many, including us, this is our "last home". We do not care what the resale value will be when we pass on.

 

[NW-Bound]

Maybe the oldtimers do not want to splurge, and just want to keep status quo. They just do not want to "blow the dough".

Of course, letting the neighborhood and the common area falling into decay is not maintaining status quo.

 

[Scuba]

I think, for many, including us, this is our "last home". We do not care what the resale value will be when we pass on.

We see our condo as our last home too. However we also see it as a resource we can rely on if one or both of us needs LTC or funds for some other reason. We certainly don’t want any of our investments, including our real estate, to fall in value over time due to lack of proper attention.

 

[Scuba]

Maybe the oldtimers do not want to splurge, and just want to keep status quo. They just do not want to "blow the dough".

Of course, letting the neighborhood and the common area falling into decay is not maintaining status quo.

Yes, I agree. “Falling into decay” has different definitions though. To some, sixteen year old furniture that is totally dated but still usable and patio furniture that the finish is noticeably chipped on is not decay. To others it is. Objectively since the units a few blocks away are selling faster and for more $$, it must be perceived negatively by prospective buyers but I suppose some people who never want to sell are ok with this.