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Under Water Boomers Face a Dilemma – Rent or Sell

Category: Financial and taxes in retirement

Oh baby boomers, what a mess we’re in now. Not only have our investment portfolios been hammered, but our real estate investments are hurting too. A recent study from the Council for Economic Research points out that both add up to grim news for baby boomers – particularly for those who planned on moving to start their retirement.

“The collapse of the housing bubble, which led to the current recession, has already destroyed almost $6 trillion dollars in housing wealth for homeowners,” said report co-author Dean Baker. “This reality is compounded by the recent collapse of the stock market. The result is that many baby boomers will only have Social Security and Medicare to rely on in their retirement.”

The Center’s report found that 15% of homeowners aged 55 to 64 are “underwater” – that is they owe more on a mortgage than the house is worth. The situation is even worse for those 45 -54, where 30% have negative home equity. Boomers in certain parts of the country are more likely to be underwater than in others. South Florida, Arizona, and Nevada residents are most likely to have negative equity. As real estate woes spread across the country, however, negative equity will affect more and more people in the soon-to-retire population.

The Center also reported that overall net financial worth for the 45 -54 year old boomer group has has also declined – 45% over the last 5 years. Their median net worth declined from $172,400 to $94,200 in the period. Whereas 5 years ago this group had investment assets that could generate $14,000 in annual income, now the figure is only $8,000. The result is that many baby boomer households will enter retirement with little wealth beyond Social Security.

For Those Who Want to Move Now
The crisis has particular meaning for baby boomers who are thinking about moving in retirement. To buy retirement property now they face a tough choice – should they sell their homes now and tap their investment portfolio to fund the shortfall, or should they wait for prices to recover?

Richard E. Austin, a financial advisor with Lincoln Financial Advisors, said in the New York Times in March that for people who need to sell who expected “real estate prices to decline for years…. selling now could shield them from deeper losses.” Austin went on to say that “a better option” could be renting out the house rather than selling it, and waiting for real estate prices to rebound.

Topretirements tends to agree with Mr. Austin that renting is probably the better option. It carries the risk that real estate prices will not recover before you need to sell. But it also has the possibility that you could recoup at least the value of your mortgage in the future. In the meantime you could rent out your house (assuming that the rental market in your area is viable), while you in turn could neutralize some of your risk and conserve capital by renting in your new community.
What’s Your Opinion? Use the Comments feature below to share your ideas.

Posted by Admin on March 15th, 2009


  1. It seems to me renting is as big a risk as selling. Depending on the renter you may have to reinvest your rental equity in a fixer upper job just to sell your house at all much less for what it may be worth.

    by Mary Bognich — March 18, 2009

  2. A person deciding whether to sell now or in the near future should consider the relative value of the home to be sold vs. the home to be purchased. Both are lower now than they were at or near the peak. Also consider relocating to a lower-priced area. This may make the value proposition even better. Renting may come into play if selling is an issue depending on the market dynamics in the area where you must sell.

    by Roger Berwanger — March 18, 2009

  3. […] Resources 2010: The Best Time to Buy a Home? (MoneyWatch) Baby Boomers Face a Dilemma: Buy or Rent How to Retire in Style and on a Budget Should You Buy or Rent (Kiplingers) Posted by John Brady on […]

    by » Buy…Rent….or Stay? Topretirements — May 11, 2010

  4. […] Further reference: How are prices in your home town? Buy, Rent, or Stay What to do if you are under water on your mortgage […]

    by » Time to Rent… or Time to Buy? You Make the Call Topretirements — June 1, 2011

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