With real estate values depressed, some boomers may be thinking that this is a good time to buy a retirement home. I think there is a lot of logic to that plan, if executed correctly.
What we have done appears to be part of a baby boomer trend. Consider this data from a recent Smart Money article:
In retiree hot spots Palm Beach, Fla., and Hilton Head, S.C., home sales jumped 39.3% and 13.6%, respectively, in 2009. Sales of vacation homes are also on the rise. In 2009, sales nationwide increased 7.9%, according to a 2010 study by the National Association of Realtors. More than one in four vacation-home buyers (54% of whom were 45 or older) plans to use the property as a primary residence in the future, the NAR study showed.
Some issues to consider:
1. Does the geographic location make sense? If the retirement home is not near where you live now, it may be smarter to rent before you buy, to avoid an expensive mistake. Can you use it as a vacation home before you retire? Also, if being near your adult children is important, do you know now where they will be when you retire?
2. Can you weather the storm of long term ownership? The times when real estate was sure to appreciate year after year are gone, perhaps forever. Making a quick exit if money gets tight may not be possible. Thus, a pre-retirement purchase of a retirement home is a long-term decision.
3. Do you really understand market values and trends? Home prices have fallen in most areas, and dramatically so in places considered prime retirement destinations, such as Florida, Arizona, and Nevada. Some experts think that prices will begin rising in later this year in places like Boulder, Colo., Bellingham, Wash., and Napa, Calif. On the other hand, prices in cities in Arizona and Florida where foreclosures are plentiful may continue to fall.
4. Have you decided on the type of housing? Will your retirement home mean downsizing? Detached single family home? Town home? Condo? This may present another “try before you buy” strategy.
I think the process of thinking about and shopping for a retirement home brings an exciting reality to your overall retirement plan. Go for it! Even if you can’t pull it off now, the attempt may motivate you to make other changes in your financial planning and lifestyle that will make it possible later, before real estate values escalate.
Here is a link to the Smart Money article: Is Now a Good Time to Buy a Retirement Home?