Is Now the Time to Buy into a Retirement Community

June 27 — Identifying the bottom of a real estate cycle is a trick that is just about impossible to master. We at Topretirements have been exploring this question for over a year now, wondering if it is finally the right time to buy into a retirement community or active adult community. Unfortunately, there is no definitive answer in sight. Today’s New York Times article, “Retirees Find the Time May Be Right to Buy“, examined this question, profiling the experiences several retirees had as they explored the retirement community real estate market.

The common thread in their adventures is the effect dropping real estate prices have in their view of the market. According to Case-Schiller data, prices in 20 of the top U.S. markets were off 15% in April vs. the year ago April. Prices in the first quarter of 2008 were off 14% vs. the same quarter of 2007. Fueled by foreclosures, prices in Miami, Phoenix, and Las Vegas dropped over 25% in April vs. year ago. Prices in these markets have now been diving steadily for over 2 years.

One reason for buyers to finally emerge from their bunkers is that, given the relentless price drops, there are now properties coming on the market at what look like reasonable prices. And when a serious buyer senses a bargain and a seller who is open to negotiation, sales start happening.

A good thing about the U.S. economy is that all markets in the U.S. do not behave the same. Some cities, notably Charlotte, did not see the big price run-ups as other areas, and as a result are not experiencing significant declines. Even in Florida, which has not been experiencing as much retiree immigration as it used to, there are real differences. Northern and middle Florida saw less excess, so these markets have been much more stable than much of South Florida. In Miami and Fort Myers there was too much building and too much speculation – in these areas inventories are too high and prices continue to fall. The disparity in markets is another factor that makes it hard to know if prices have reached a bottom in the markets you are interested in.

The main retiree interviewed in the Times story, Franke Watson, recently purchased a home in Prescott, AZ. The house was listed originally for sale at $430,000. When Mr. Watson saw it the price had been lowered to $349,000. He offered $300,000, and he and the owner eventually agreed upon $309,000 – a 28% discount from the original listing price.

The Sarasota Herald-Tribune had a recent article, “Have Home Prices Hit Bottom?“, with one of the more interesting ways of looking at home prices. Their analysis assumes that the average annual increase in home prices has traditionally been around 6-7% a year. Obviously in 2005 and 2006 the hottest real estate markets in the U.S. got seriously out of hand. In Sarasota, home prices increased 32% in 2005 alone! Since then prices are down in the hot areas. The article points out that if you assume a 6-7% annual price increase from 1999 on, the current prices are, after the correction, pretty close to where they should be.

The biggest problem facing many retirees right now is the inability to sell their current home. They do have an advantage over most other real estate buyers, though, and that is that they generally have plenty of equity. According to the Times article, many of those folks are taking the plunge, or at least thinking about taking a big step. Their rationale seems to be their estimate that their house will eventually sell, so why not take advantage of the current bargains to be had now.

New Assisted Living Resource Debuts – BestAssistedLiving.com

June 24, 2008 — Baby boomers fortunate enough to still have living parents gained a new resource today, BestAssistedLiving.com. This new online resource can help adult children find the best assisted living, eldercare, independent living, CCRC, and nursing home facilities for their loved ones. The website is a sister site to Topretirements.com, serves a similar audience, and has a site structure that will be very familiar to visitors of that popular online retirement community resource.

As a welcome to the site visitors can download a useful free eBook, “The Practical Guide to Selecting Eldercare Facilities“. This new assisted living resource features a variety of helps for children of elders, as well as seniors who are looking for the best assisted living and retirement home resources.

The Assisted Living Advice section provides practical articles on how to select a quality facility, as well as how to engage the elder in the process. The Assisted Living Forums let site users pose questions and ask for advice from their peers who are going through similar experiences. And of course one of the main purposes is to provide a database of the best assisted living and retirement facilities, so that visitors can identify places in their towns and states that can provide the right eldercare for their loved ones.

To encourage the widest possible list of resources for site visitors, owners of assisted living facilities are encouraged to list their properties on the site (there is no charge for a basic listing).

Note: Bestassistedliving.com was originally named topeldercares.com.

The 10 Brainiest Retirement Communities

While some might think this list is primarily for eggheads, consider for a moment the popularity of college towns for retirement. Increasingly retirees want to retire to a place where they can keep their brain engaged. This list from U.S. News & Word Report gives you some “brainy” places to consider.

Here are U.S. News’ brainiest places to retire:

* Ann Arbor, MI (more…)

Active Adult Communities Roll Out Incentives

Developers of active adult and over 50 communities are fighting back against the real estate slowdown. Their imaginations have been working overtime to come with new and exciting incentives to bring prospective buyers back into their communities. Obviously, lowering prices is a tactic used by most. Indeed the average price of new units sold at Toll Brothers and other builders is down significantly. But many developers are also focusing on the key problem facing buyers of active adult communities – they can’t buy a new home because they can’t sell their old one. Check out some of the ideas we have heard about in the last few weeks:

Buy 1, Get 1 Free
We’re not kidding, a California builder, Michael Crewes Development, is actually offering this deal. Buy one house, get a 2,000 sq.ft. cityscape row home worth $400,000 for free. So what about the house you have to buy? Oh, Royal View Estate homes in San Pasqual Valley start at $1.4 million. One blogger likened this deal to something like; buy a candy bar, get a free raisin. Still….

Pay Us When You Get the Money
Yep, at The Enclave at the Fairways in Lakewood New Jersey, buyers can delay paying the substantial entry fees in this community. The Peace of Mind program locks in prices and refunds buyers’ deposits if they can’t sell their home in 6 months (it must be listed with a licensed broker).

Discounted Financing
Similar to the perennial tactic used by car dealers across the country, some developers of active adult communities will give you subsidized interest rate on your mortgage.

Relocation Assistance
There are several permutations of assistance to help buyers move into their new homes. At Toll Brothers, real estate professionals can receive a $3000 credit for the relocation expenses of their clients.

Options
A variety of builders are offering $20,000 or more worth of upgrades or options at no cost, rather than a discount. Ryan Homes offers that deal, if you use their mortgage subsidiary.

Home Owners Association Foreclosures and Foreclosure Tourism

About 60 million Americans live in buildings controlled by home owners associations (HOAs), according to the Community Association Institute. Now, as the real estate crunch moves into a new phase with more strapped owners who can’t make their mortgage or maintenance payments, HOAs are being forced to foreclose to protect their interests.

The problem is worse in older condominium associations, especially those that have been poorly run. Suddenly facing large maintenance bills some HOAs have to send out hefty assessment notices, but unfortunately many owners are not in a position to pay. While a foreclosure action is not pleasant or inexpensive, sometimes it is the only resort for HOAs, who typically stand at the back of the credit line behind banks and other creditors.

Want to Ride The Foreclosure Bus?
In another interesting and sad wrinkle to the real estate bust, more and more U.S. cities now have a new kind of tourism in their communities – the foreclosure tour. Although it is questionable how many sales have resulted from the tours, they are apparently very popular. We have heard of foreclosure bus tours in Boston, Long Island, Cleveland, Minnesota, and Missouri. Thanks to seekingalpha.com for this research.

Active Communities – Better to Rent or Buy?

May 30 — For as complicated a question this is, it is amazing how strong the opinions are. The one thing that is clear is hindsight – if you lived in the markets hardest hit by the housing crisis over the last 2 years (Phoenix, Las Vegas, South Florida, and parts of California), renting would have been the superior option. Your living costs would have been lower, and you wouldn’t have lost any capital.

Articles in the New York Times and Seekingalpha.com explored the issue this week. The Times article on “Committed Renter Decides to Buy” used the concept of rent/purchase ratio to try to get a handle on the question. The ratio is basically the price of a typical house divided by the annual rent – and the higher the number the more you should consider renting. In Miami, for example, the peak ratio was a whopping 28.2. In Pittsburgh, by contrast, the ratio is a humble 13.6.

Seekingalpha’s “Renter Versus Buy” story had a slightly different method – it compared the cost of renting vs. the cost of owning. Generally, whenever the cost of renting is lower than the cost of owning, the more you should consider the renting option.

So how does that apply to the market for active adult or retirement communities? In general retirement real estate has been part of the brighter side of the recent real estate market. That trend depends on location of course – south Florida active adult communities have been particularly hard hit.

Our opinion is that the same principles apply – if the ratios or cost relationship between renting/buying is out of whack – go with the cheaper option. If the ratios are unclear, renting for a year or two in an active adult community might be the smarter thing to do. For one thing, you get to sample the neighborhood at lower risk. You also get to scope out the community – if you do decide to take the plunge and buy there, you will know the best locations and types of housing. You might miss out on the market bottom with that approach, but you also could avoid a further slide in housing prices or choosing the wrong community.

Housing Slump Postpones Moves to Retirement Communities

Thousands of retirees are having to postpone their planned moves to retirement communities – a different kind of housing crunch victim. Many have selected the active adult community or CCRC of their dreams, only to find a big catch – they can’t sell their primary residence, which is how they will fund their new home or entry fee into a CCRC (Continuing Care Retirement Community).

Topretirements has heard much anecdotal evidence from various CCRCs about this phenomenon. In fact many continuing care communities are experiencing a sales slowdown for this specific reason. Buyers are ready to move in, but they don’t have the cash on hand to complete the deal. Realtor Magazine recently wrote on the subject as well. One of the problems with the issue is many retirees only want to sell if they can realize 2005 type prices – accepting anything less seems like some sort of defeat. Unfortunately that is the state of the current market – prices are off at least 20% in many parts of the country, and probably won’t be headed higher for some time to come.