Expensive Mortgages May Dent Retirement PlansPaul-Martin Foss
While the American Dream may be to own a house, that dream is becoming more and more difficult for Americans to achieve. More than half of all Americans are now unable to afford the mortgage payments on an average-priced home in their area. Not only does that not bode well for renters looking to buy, it also may cause problems for retirees hoping to capitalize off the appreciation of their home’s value in retirement.
More and More Renters Unable to Buy Houses
In some areas of the country with overheated real estate markets, such as California, Florida, and the Northeast, only about 10 percent of renters would be able to afford the mortgage on an average-priced house in their area. And because rents continue to increase, those renters find themselves increasingly unable to save up enough money to make a down payment on a house.
Not being able to make at least a 20% down payment on a house not only leads to higher monthly mortgage payments, it also requires mortgage insurance payments, an extra expense. That makes it increasingly unlikely for many renters that they will be able to afford to buy a house.
Not only does extra rent take more money from paychecks, but so does saving up for a down payment. And that means less money that can be put towards retirement savings, harming the ability of younger households to save up enough money to retire comfortably.
Retirees May Not Be Able to Sell High
For many American households, the value of their home is the single largest and most valuable asset they possess. They may try to tap into their home equity to get quick cash, or they may hope to sell their home at some point in retirement to benefit from the price appreciation that has occurred over the decades. But if fewer and fewer Americans are able to afford a mortgage, that severely limits the number of homebuyers.
Now that the baby boomer generation is retiring, many will try to downsize their lifestyle, selling their current houses and purchasing something smaller. As they continue aging and eventually pass away, more and more houses will enter the market. But with a smaller number of people able to afford the mortgages that would enable them to purchase those houses, sellers will have no choice but to cut home prices. Retirees who were expecting to profit handsomely from selling their house may find themselves in for a surprise when they decide to sell.
That’s why a sound retirement plan cannot rely on wealth generated solely from home equity. Neither can you rely on Social Security, which is expected to go bankrupt in a little over 15 years, nor any other government assistance. If you want a comfortable retirement, you will need to establish a solid routine of saving and investment over the course of your career. A well-diversified investment portfolio that includes precious metals such as gold and silver will ensure that no matter what goes on in the real estate market in the future, you will always have a solid nest egg to fall back on in your golden years.