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Is the Housing Market Boom Headed for Another Bust? Thumbnail

Is the Housing Market Boom Headed for Another Bust?

In recent months, my two daughters have given me a personal perspective on just how hot and how competitive the real estate market is right now. Both decided to buy homes in the Kansas City area, and both had to make unsuccessful bids on multiple houses before they were able to close on their new homes. The thought that millions of families all over the country are trying to navigate these same issues is quite a turnaround from just a decade ago, when folks were hesitant to buy houses in the shadow of the Great Recession.

However, as we discuss on today's show, many economic factors that caused the housing market to collapse in 2008-2009 are contributing to the current housing boom. That doesn't mean we're headed for another bubble burst, but it does mean that folks need to weigh all their options if they're looking to buy or sell right now, especially if you're eying a potential retirement home.

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1. High demand, low supply.

In the lead up to the Great Recession, low interest rates and strong home prices attracted lots of folks to the real estate market who probably should have put their money elsewhere. Many new homebuyers signed adjustable-rate mortgages that they couldn't afford in the long run. Would-be entrepreneurs flooded the market with too many spec houses. Suddenly our large financial institutions were stuck with bad mortgages, sellers were stuck with houses they couldn't sell as credit dried up, supply exceeded demand, and, well, you know the rest.

Today, we're in a situation where demand is far exceeding supply. Construction of new spec houses has remained relatively low in the last ten years, especially as the cost of building materials has risen. And, according to a recent Dave Ramsey article, current homeowners aren't in a selling mood: actively listed homes were down 52% in March of 2021 compared to last year. The work from home movement could be a factor in those numbers, as folks in some industries no longer need to relocate to take a new job. It's also likely that many homeowners whose discretionary funds rose during quarantine used money from cancelled vacations and reduced transportation expenses on home remodeling projects.

2. Make a move or retire in place?

Many seniors who planned to downsize in retirement are seeing some big opportunities in this housing market. For most folks, a house is already their most valuable asset, and with demand continuing to soar this could be a good time to sell.

However, you have to be very careful about crunching the numbers and assessing the total picture of what a move is really going to entail. The cost of downsizing is almost always higher than folks anticipate -- in many cases, it's even higher than staying in a house that feels a little too big since the kids moved out. Sure, interest rates are low right now. But even if you sell your house for a nice profit and get preapproval from your bank, you're still going to be joining the millions of shoppers who are duking it out over a dwindling supply of houses. Again, based on what my daughters just went through, that aggravation might not be worth it, especially if you have the cash to upgrade some amenities in your current home or hire someone to help you with yard work or cleaning out the garage.

Also, don't forget how moving could affect your lifestyle. Will you still be able to see your friends and family regularly? If you're looking at another state, are there significant cost of living differences? Would you need to shop for new Medicare coverage? And if you sell your current house in this high-priced market, could you be looking at a significant capital gains hit come tax time?

3. Inflating another bubble?

Of course, it's very possible that some seniors will weigh all those factors and conclude that this is the right time to sell their homes and relocate.

Which leads to the big question: Are we looking at another potential housing bubble?

Based on our analysis, my team doesn't think we're headed for another collapse like in 2008-2009. Even with low interest rates, lenders are being more selective about whom they're giving mortgages to. There are also many corporations who are buying lower-priced homes and turning them into rental properties, which again keeps inventory low. And, finally, the cost of building materials is still so high that it's prohibitively expensive to build new homes. So, while home prices might not stay as high as they have been, folks who are able to buy a new home probably don't need to worry about their investment plummeting in value any time soon.

We understand that the housing market and changes to life and work in the past year have made many folks rethink what home really means to them. If you’re envisioning a new dream retirement destination, come talk to us to see how we can help you chart your best course.

About Bill

Bill Keen is a CHARTERED RETIREMENT PLANNING COUNSELOR℠ and independent financial advisor with more than 25 years of industry experience. As the founder and CEO of Keen Wealth Advisors, a registered investment advisory firm, he specializes in providing personalized retirement planning designed to help people thrive before and during their retirement years. With a passion for educating others, Bill regularly blogs about retirement planning, hosts the podcast Keen on Retirement, and has contributed to U.S. News and World Report, Reuters, Wall Street Journal’s Market Watch, Yahoo Finance, and other publications. Based in Overland Park, Kansas, Bill and his team work with clients throughout the greater Kansas City area and across the nation. To learn more, connect with him on LinkedIn or visit www.keenwealthadvisors.com.

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