Why Retirees Should Be Worried About Rising Housing Costs and What They Can Do
by Eric Volkman | Updated July 19, 2021 - First published on Dec. 2, 2018
Many or all of the products here are from our partners that pay us a commission. It’s how we make money. But our editorial integrity ensures our experts’ opinions aren’t influenced by compensation. Terms may apply to offers listed on this page.
Image source: Getty Images.
The apparently never-ending rise in housing prices is affecting one demographic in particular -- the growing number of Americans in retirement. It’s a time in life when a person should be living in comfort with a nice buffer of money, not struggling to afford the home they want to live in.
There are numerous reasons for how we got to this point. Thankfully, there are some moves retirees can make to reduce the impact of the situation.
Steady income but rising prices
At heart, the problem is rather straightforward -- home prices have climbed relentlessly in many regions, but unfortunately retiree income tends to stay level. In other words, home ownership is becoming rapidly more unaffordable for seniors.
It’s not only the price tag on the residence. With the Federal Reserve’s steady increasing of its benchmark Federal Funds rate, interest rates for nearly every type of loan have risen commensurately. Mortgages are more expensive than they were only a few short years ago.
The cost burden is also in force for retirees that already own the home they live in. There are always maintenance expenses to be paid, and the older a house, usually the more it needs to be fixed and kept up. Meanwhile, property taxes can eat holes in a retiree’s budget.
High competition and prices for smaller homes
Downsizing is a common desire for retirees. The family home is too big and empty for a parent or two entering their golden years; the kids are long gone, and there’s little use for all that extra space -- not to mention the effort and expense of maintaining it.
The classic solution is to sell that cavernous pile, then buy a smaller home more suited to a duo (or single, depending on your circumstance).
But not so fast! Prices of modest dwellings -- or “starter homes” as many call them -- have been rising at a quicker clip than those of larger, higher-end residences in most American markets, according to a report issued earlier this year by Zillow.
There are numerous reasons why, not least because the real estate boom has made such housing the only affordable option for many budget-strapped buyers. So these days retirees who sell their family homes in the hopes of downsizing are slipping into a market with a higher number of rival buyers, and prices on a fiery trajectory upward.
What retirees can do about rising housing costs
Fortunately, there are good strategies that can be employed by retirees facing rising housing costs. Here are four:
Rent a home -- Instead of downsizing, why not sell your family palace then rent a home? Yes, rents can rise, but such increases are capped in the many regions and municipalities with some form of rent control. Meanwhile, you won’t need to pay maintenance expenses or property tax on your new home.
Take on boarders -- An alternative to selling your longtime residence is to bring in housemates. Family members in need of inexpensive accommodation, trusted associates, or well-verified strangers can qualify. Such tenants can pay rent directly to you, or take care of certain work and/or expenses in return for their lodging. This will also make the home feel less empty.
Increase your income -- With historically low unemployment rates and the proliferation of remote work, there are more chances than ever for a retiree to set up a side gig to help make ends meet. Many work-from-home positions require little more than a half-decent computer, the right software, and a reasonably fast internet connection.
Take out a reverse mortgage -- A reverse mortgage is a facility in which homeowners essentially borrow a stream of income against the equity in their residence. It’s paid back when the borrower sells the house or passes away.
There are numerous requirements to obtain a reverse mortgage and several advantages and drawbacks, but it can be a powerful funding tool for retirees.
A historic opportunity to potentially save thousands on your mortgage
Chances are, interest rates won't stay put at multi-decade lows for much longer. That's why taking action today is crucial, whether you're wanting to refinance and cut your mortgage payment or you're ready to pull the trigger on a new home purchase.
The Ascent's in-house mortgages expert recommends this company to find a low rate - and in fact he used them himself to refi (twice!). Click here to learn more and see your rate. While it doesn't influence our opinions of products, we do receive compensation from partners whose offers appear here. We're on your side, always. See The Ascent's full advertiser disclosure here.
About the Author
Eric is an expert who has been covering personal finance since the mid-1990s. His articles have appeared broadly on sites such as MSN, USA Today, and Yahoo.
We're firm believers in the Golden Rule, which is why editorial opinions are ours alone and have not been previously reviewed, approved, or endorsed by included advertisers. The Ascent does not cover all offers on the market. Editorial content from The Ascent is separate from The Motley Fool editorial content and is created by a different analyst team.
