By Warren Bland, Ph.D.
On February 18th, 2009, the Federal Reserve warned that the nation’s crippled economy is even worse than thought and predicted it would deteriorate through 2009, with no sign that the housing market will stabilize. At times like these, you might well think that you need to hunker down, cut expenses, and sit tight in your present home until the market improves. But you could be wrong – you may be richer than you think and today may be the right time to start thinking seriously about the economics of your retirement.
For most upper middle income Americans, home equity has been a principal retirement asset. The ability to recoup and profitably invest some of your home equity by downsizing or relocating to comparable but less expensive housing in a more affordable area increases your disposable income. For many retirees, such additional income could make the difference between living modestly and retiring in style.
But, you say, in the last two years my house has lost 20-40 percent of its value, my equity is reduced; how can I retire/relocate now? A good question indeed! The answer is a classic “bad news, good news” scenario. The bad news is that your house has fallen in value; the good news is that nearly everyone else’s house has fallen too. Let’s consider several examples of how downsizing or relocation (with or without downsizing) can lower your cost of living and increase your disposable income.
Los Angeles, Sarasota-Bradenton, Florida, and Las Vegas, Nevada, are three cities most hard hit by the bursting of the real estate bubble. Median single- family residence (sfr) values have fallen by about 40 percent over the past two years in all three cities. Meanwhile, condo values have fallen by 28 percent in Sarasota-Bradenton, 38 percent in Los Angeles, and an astonishing 53 percent in Las Vegas. At present prices, Los Angeles residents could sharply reduce their cost of living and especially their cost of housing by downsizing to a condo in Los Angeles or relocating to a sfr in Sarasota-Bradenton or Las Vegas or even more profitably to a condo in Las Vegas. The following figures assume selling and buying properties valued at 50 percent above the current median price for each metropolitan area.
sfr condo
Los Angeles 530 360
Sarasota-Bradenton 270 323
Las Vegas 270 135
Relocating from a sfr to a condo in Los Angeles generates a gross gain of $170,000. Moving from a sfr in Los Angeles to a sfr in Sarasota-Bradenton or Las Vegas provides a gross gain of $260,000. Because condos are relatively cheap in Las Vegas, the Los Angeles sfr to Las Vegas condo move is highly profitable, generating a gross gain of nearly $400,000.
Obviously, this report has only scratched the surface of possible downsizing/relocation opportunities existing nationwide. Do a little research and you may find that you too can afford to retire in style.
Warren R. Bland, PhD, Professor of Geography at California State University, Northridge and author of Retire in Style: 60 Outstanding Places Across the USA and Canada, Next Decade, Inc., 2005. For more information about Dr. Bland’s books, go to www.nextdecade.com