We are in changing times. The stock market is soaring, housing prices have risen and confidence in real estate is strong. In my career I have seen every market you can imagine. In the late 70’s and early 80’s many of you might remember the interest rates as they climbed to an unimaginable level of 20% for a 30 year fixed rate mortgage! We are currently at 4.25% for that very same mortgage today. Then the market would rise and fall about every 4 years almost to the day. That went on until the early 90’s. Then we experienced a rather long period of real estate prosperity with some hiccups until 2006. On came the great recession which is still on our minds. Property values fell on average 25% but some areas dropped over 50% in value. 2012 was the low point of the recession for housing and many other areas of the economy. Once again we pulled out of that morass and are now have recovered to pre-recession home values in most areas of our state and 4-County area and the country.
Many of you may be trying to time the market, meaning you want to get to the peak of this upward ride in the market and then at that point make your move to new housing. We all want to achieve the most equity before we sell our home, especially if this is the last home you will own. That is understandable and in theory makes sense. We are now experiencing a shortage of housing inventory which is creating a great environment for those putting their houses on the market. We are seeing multiple offers in many cases when the home is priced properly based on condition and location. If homes are priced too high (not taking condition into account in most cases) your property will linger just like in any other market. The fallacy is that you can put almost any price on your home today and it will sell. The rules of a free market economy still apply even in this brisk market.
The best strategy is to look to the past to help create your future in the most advantageous way possible. There are two factors that will play into housing values as we move into 2017 and beyond; inventory and interest rates (inflation).
First inventory. I’ll bet many of you baby boomers have discussed where you would like to live and when you think you will make that change. This segment, the boomers are 80 million strong and we are mostly in our late 50’s up to age 70. The kids have moved out in most cases and we are wasting space that is no longer needed in our homes. Add to that we may not want to be walking up and down stairways and may be developing other health restrictions. Our yards are becoming larger and home maintenance is not as enjoyable as it used to be. We want to be closer to our grandchildren.Therefore, there will be many, many homes entering the market probably all at about the same time. We all watch what others are doing before joining the parade. When more homes are available than purchasers the price falls. That is how capitalism always works.
The second factor will be interest rates. As the economy and housing is heating up, interest rates will rise. They have started this slow increase from a low of 3.25% to our current 4.25% for a 30 year fixed rate loan. I believe our next economic challenge may be inflation which we experienced as stated in my introduction almost 40 years ago. Factoring in the boomer age and how many healthy years we have to enjoy our next move, these may be the “good old days” we will talk about in the future. I believe the stock market will stay strong for some time to come, therefore taking your equity and investing it now may a good strategy. Remember, for most of you there will be no taxes of any kind on your equity when selling your home (you are exempt as a couple up to $500,000 of gain and for a single person up to $250,000 gain).
My advice in this article is directed to boomers. We as 55-70 year old boomers should have a different strategy from our younger counter parts. So many clients have waited too long and then made their move under duress or circumstances never planned for, such as health changes. We want to be in charge of our lifestyle rather than waiting for other issues to decide for us. In closing the boomer generation and our parents have much to be thankful for if we have invested in housing over our lifetimes. Yes it can go up and down but in the end owning a home has been the most reliable investment of our lifetime. Make the most of your home equity and enjoy every moment and every day. Taking control of your destiny is critical in a positive fulfilling lifestyle. Life is unpredictable but following patterns of the past is the best way to plan for our future!