Before Calling The Movers, Boomers Should Consider Some Facts
Boomers who are literally sitting on a pile of cash as they watch the price of their primary home appreciate handsomely may wonder if selling now will make it possible for them to locate to a more desirable address: Easy Street.
But before boomers call the movers, financial advisors suggest that a careful examination of the facts is needed.
It is true that average U.S. home prices increased 5.56% in second quarter 2003 over second quarter 2002, according to the Office of Federal Housing Enterprise Oversight, Washington. Over a five-year period, that appreciation has been 37.88%, the agency says.
Prices of other goods and services grew at a 2% rate, it adds.
OFHEOs Housing Price Index suggests two things, the agency says: continued strength in housing markets as well as an orderly deceleration in growth.
But, advisors contacted by National Underwriter, maintain that appreciation aside, other factors need to be considered.
Chief among these is, Where are you going to live? says Guy Cumbie, a certified financial planner with Cumbie Advisory Services, Fort Worth, Texas.
Locking in the appreciation in a primary residence is not necessarily a bad decision, he says, but “if you are talking about a cyclical trade only (selling high and buying low,) then that can be a bold planning move that puts you into the situation of paying a very high price for your own replacement shelter if it becomes protracted.”
Ones primary residence is typically a single, undiversified asset as well as a large investment that makes up a big part of an individuals or familys asset base, he adds.
“It can be speculative and you need to look at it very carefully to make sure it makes sense in your specific circumstances,” Cumbie says.
Additionally, he also notes the fees associated with selling and then buying another home.
For the seller working through a real estate broker, commissions typically run 6% of the sales price, although online sales can reduce the commission fee.
When it can make sense to realize the gain on a primary home is when a boomer is contemplating a life change such as a move or a downsizing or simplifying of lifestyle, he continues. If it facilitates a transition, then it may be worth considering, he adds.
A primary residence is a long-term investment, but beyond that is really a lifestyle choice, says Nancy Flint-Budde, a certified financial planner in Salem, N.Y. Simply put, it is a “use asset,” she says.
For instance, Flint-Budde says a couple she advises is focusing on simplifying life, and, as part of that life change, is selling their home and moving into one that is half the value of their original home.