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How the Housing Market Impacts Your Retirement

Across the United States, home values have dropped in the last few years. The impact is regional with some markets much less affected than others — some of the worst markets have appeared to have bottomed out; great homes in great neighborhoods are still in demand; new housing starts have been at a record low (good for existing home sales); and high-end homes not as hard hit as moderate- to low-end properties.

Homes are selling now and that activity will continue to pick up as unemployment lessens and the economy recovers. According to the Case/Shiller Index, which tracks U.S. housing values, home prices have traditionally followed a slow but steady incline. The upward spike we experienced from 2005 to 2007 was an anomaly, and not one we’re likely to see again in the baby boomer lifespan.

This may impact you in several ways. Perhaps your home no longer provides as great a backup retirement income plan. Or, perhaps you’ve considered a senior community, but delayed that move to wait and sell your home when prices recover.

However, it’s not likely we’ll return to the over-valued housing bubble of 2006. Consider what your home was worth back around 2003-2004. At the national level, we’ve returned to those levels and are near where they would be had prices simply continued their slow, steady climb without the spike.

According to the 2010 Urban Land Institute Report entitled Housing in America: The Next Decade, going forward, the rate of house appreciation is likely to revert closer to the long-term norms (pre-2006) of 0.75% to 1% per year over the rate of inflation; not double-digit annual increases.

Current Investment Advice
Financial experts have cautioned homeowners and homebuyers that a house should no longer be considered a high performing asset, but rather a place to enjoy living over a long period of time. Economists want to encourage people to continue buying homes. Economists also want consumers to seek out other investment vehicles to increase the flow of money into capital markets to help fund public companies; thus adding jobs to the economy.

In today’s environment, taking on a modest mortgage and paying it off before retirement is the goal.

A Harder Working Asset
The question in today’s homeowner market isn’t how much the value of your home has dropped, but rather will your house sell? Well-built homes in highly sought-after neighborhoods can sell for a fair price in today’s market. People with the means to qualify for a mortgage are interested in trading up to the community they want to be in at a fair price, as opposed to an inflated one. And for an empty-nester/pre-retiree who would do well to downsize, you can most certainly scoop up a smaller, quality home suitable for your needs while home prices and interest rates are low.

The only question left is: Can you secure a strong, long-term rate of return or a guaranteed source of retirement income if you downsize and receive an influx of cash? To answer this, consider contacting an expert financial advisor who specializes in retirement planning to learn more about how today’s home values can lead to tomorrow’s retirement income opportunities.

Reesa Manning is a Senior Financial Advisor at Integrated Wealth Management. For more information, call Reesa Manning at (760) 834-7200, reesa@iwmgmt.com. Integrated Wealth Management, Inc. is a Registered Investment Adviser.

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