3 Reasons Rising Home Prices Aren’t Good for Retirees
Written by
Heather Altamirano
Edited by
Nicholas Morine
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Retirees wanting to simplify their lives and build their nest eggs have often traded in their family homes for a smaller, cheaper house, pocketing the difference or paying cash for their downsized home. But things have quickly changed.
While mortgage rates have always fluctuated, buying a home just a short time ago was easier. In 2019, rates were ~3.94%, per The Mortgage Reports, which would have been affordable for retirees to ditch their larger abodes. However, mortgage rates have steadily climbed over the last couple of years to a national average of 7%, according to SmartAsset — and with low housing inventory, the math doesn’t add up for retirees, especially those who have a low-locked in interest rate for their current home.
High Monthly Payments
Before, downsizing meant selling your bigger house, making a profit, and buying a smaller place with lower payments — or, even better, zero mortgage. But that’s not happening today due to rising housing costs and interest rates. With seniors on a fixed income, the idea of a higher mortgage payment is risky.
“The typical person purchasing today’s median-priced home for $420,000 has a record-high $2,864 monthly housing payment with a 7.1% mortgage rate, the current 30-year fixed-rate average,” according to a recent Redfin study. “If they were to purchase a home for the same price with a 4% mortgage rate, which was common in 2019, their monthly payment would be $2,210, roughly $650 less.”
Capital Gains Tax
Owing too much in capital gains is another concern for retirees who earn a high profit on their homes. Couples with equity above the IRS allowance of $500,000 for married homeowners who file a joint return could lose big.
“Planning is key for homeowners with equity above those thresholds: they could start to tax-loss harvest in the years preceding a sale, realizing capital losses to offset future capital gains,” said Kevin Khang, head of active research at Vanguard, per Barron’s.
Low Inventory
Due to the pandemic, inflation, and rising interest rates, there has been a housing shortage for the last couple of years. Retirees who want to downsize and move closer to family will have limited options.
“The number of homes for sale that measure 750 to 1,750 square feet — the range downsizers tend to prefer — dropped 41% since 2019, and prices for these homes are 50% higher than they were before Covid,” Hannah Jones, senior economic research analyst at Realtor.com, told the Wall Street Journal.
Competition is fierce for smaller, cheaper homes, so staying put might be worth considering for now.
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