Transitioning from a family home to a new property can pose challenges for retirees, particularly when searching for a suitable alternative. In many areas, including the DC metro area, builders are primarily constructing four-level townhouses or luxury single family Craftsman homes, which may not be ideal due to the increased number of stairs. The limited availability of single-floor homes means that those few suitable options are quickly sold once they hit the market.
Furthermore, new condos in this region often cater to a luxury lifestyle, reflecting the high cost of land. As a result, they may not align with the needs and budget of retirees seeking more practical and affordable living arrangements. An alternative for retirees in the DC area include communities like Leisure World in Silver Spring, which offers spacious accommodations at lower price points. This community provides large rooms and amenities tailored to the needs of retirees, presenting a viable option amidst the challenges of finding suitable housing in this competitive market. However, it does mean living with a lot of other retirees, which may not be to everyone's liking.
According to the New York Times today, approximately 80 percent of older adults currently reside in homes they own. However, economists are noting a shift in the traditional belief that a paid-off mortgage can function as a financial resource during retirement.
Homeownership is no longer universally advantageous for some seniors. Linna Zhu, a research economist at the Urban Institute, poses a critical question: "Are they aging in place, or stuck in place?" This inquiry challenges the assumption that homeownership is universally beneficial for aging individuals and prompts a reconsideration of the "American dream" in contemporary society. The proportion of older adults carrying mortgage debt has steadily increased over the decades.
According to the Harvard Joint Center for Housing Studies, between 1989 and 2022, the percentage of homeowners aged 65 to 79 with mortgages rose from 24 percent to 41 percent. Moreover, the inflation-adjusted amount of debt owed also soared, from $21,000 to $110,000 during the same period.
This trend underscores the evolving landscape of homeownership among older adults and raises questions about its financial implications for retirement. The financial strain caused by larger mortgage balances, higher interest rates, property taxes, insurance, and other housing-related costs has resulted in 43 percent of older homeowners with mortgages becoming "cost burdened," defined as spending 30 percent or more of their income on housing expenses.
Despite these challenges, the median home equity has experienced a notable increase, rising by $80,000 in just three years to reach $250,000 in 2022. This rise in home equity is a key factor in why the Center for Retirement Research at Boston College recently adjusted its estimate of American households at risk of not maintaining their standard of living after retirement.
According to the Center's calculations, its retirement risk index decreased from 47 percent in 2019 to 39 percent in 2022. Although this figure is still concerning, it represents the lowest level recorded by the center in its 20 years of tracking this index. The Center's calculations include assumptions about older homeowners utilizing their home equity through reverse mortgages.
This type of financial instrument can provide older homeowners with additional financial flexibility and stability during retirement. However, despite the potential benefits of utilizing home equity, very few older homeowners actually opt to take a reverse mortgage or otherwise tap into their housing wealth. Jennifer Molinsky, who oversees research on housing and aging at the Harvard center, describes a paradoxical view of homeownership, where accumulating housing wealth is seen as a safety net for later life—a nest egg or cushion.
Yet, homeowners are often reluctant to access this equity, preferring to leave it to their children or reserve it for emergencies. Accessing home equity can also be complicated and costly. Federal reverse mortgages (Home Equity Conversion Mortgages, or H.E.C.M.s) entail significant upfront costs and involve substantial paperwork. In 2022, only 64,500 older individuals received reverse mortgages through this federal program.
Furthermore, older borrowers often face difficulties in refinancing due to reduced income after retirement. Home equity lines of credit (H.E.L.O.C.s) are also increasingly denied to seniors, particularly at higher interest rates. Additionally, maintenance costs rise over time as houses age alongside their owners. The shortage of suitable and affordable homes for older adults further complicates downsizing, even for those with substantial housing wealth.
This housing market challenge can lead to feeling "locked in" when individuals are ready to transition to a different living arrangement. Black and Hispanic homeowners, in particular, face precarious situations because a significant portion of their wealth is tied up in their homes.
Anthony Webb from the New School for Social Research highlights the widening inequality in homeownership, noting that minority homeowners typically have fewer liquid assets due to lower lifetime earnings. Policymakers have the potential to expand options for older adults by enhancing and streamlining federal H.E.C.M. programs, broadening criteria for refinancing and H.E.L.O.C. loans, and promoting the development of more housing options suitable for older buyers and tenants.
Despite the challenges and complexities, experts maintain that homeownership remains a potent wealth-building tool for older adults. Even with mortgages, homeowners are better protected against rising housing costs compared to renters and can leverage home equity to finance long-term care expenses.
MY POINT OF VIEW -
I have spoken with several people here in the Rain who are generally my age (70 plus) and we are all happy in our current homes - where we have been for 20 years or more. I think part of our satisfaction stems from the fact that we are still working. We get out every day and interact with lots of people. We are still making money - and can generally afford the cost of maintenance. And in many instances - I suspect we are too busy to consider the upheaval involved in downsizing. So - my advice to all of us - Carry On! and Enjoy.
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