If you spent your teenage years waiting anxiously for one of your siblings to get out of the shower, the idea of selling your spacious, multi-bathroom home and moving into a smaller house or condo may feel like a reversal of fortune.
Yet for many retirees, downsizing makes financial and practical sense. Younger baby boomers — those currently ranging in age from 57 to 66 — made up 17% of recent home buyers, while older boomers — ages 67 to 75 — accounted for 12%, according to a 2022 report from the National Association of Realtors Research Group. Boomers’ primary reasons for buying a home were to be closer to friends and family, as well as a desire to move into a smaller home, the report said. Both younger and older boomers were more likely than others to purchase a home in a small town, and younger boomers were the most likely to buy in a rural area.
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For retirees Fred and Shelby Bivins, selling their home in Green Valley, Ariz., will enable them to realize their dream of traveling in retirement. The Bivinses have put their 2,050-square-foot Arizona home on the market and plan to relocate to their 1,600-square-foot summer condo in Fish Creek, Wis., a small community about 50 miles from Green Bay. They plan to live in Wisconsin in the spring and summer and spend the winter months in a short-term rental in Arizona, where they have family.
Fred, 65, says the decision to downsize was precipitated by a two-month stay in Portugal last year, one of several countries they hope to visit while they’re still healthy enough to travel. “We’ve had Australia and New Zealand on our list for many years, even when we were working,” says Shelby, 68. The Bivinses are also considering a return visit to Portugal. Eliminating the cost of maintaining their Arizona home will free up funds for those trips.
With help from Chris Troseth, a certified financial planner based in Plano, Texas, the Bivinses plan to invest the proceeds from the sale of their home in a low-risk portfolio. Once they’re done traveling and are ready to settle down, they intend to use that money to buy a smaller home in Arizona. “Selling their primary home will generate significant funds that can be reinvested to support their lifestyle now and in the future,” Troseth says. “Downsizing for this couple will be a positive on all fronts.”
Challenges for downsizers
For all of its appeal, downsizing in today’s market is more complicated than it was in the past. With 30-year fixed interest rates on mortgages recently approaching 8%, many younger homeowners who might otherwise upgrade to a larger home are unwilling to sell, particularly if it means giving up a mortgage with a fixed rate of 3% or less. More than 80% of consumers surveyed in September by housing finance giant Fannie Mae said they believe this is a bad time to buy a home and cited mortgage rates as the top reason for their pessimism. “This indicates to us that many homeowners are probably not eager to give up their ‘locked-in’ lower mortgage rates anytime soon,” Fannie Mae said in a statement. As a result, buyers are competing for limited stock of smaller homes, says Hannah Jones, senior economic research analyst for Realtor.com.
Here, though, many retirees have an advantage, Jones says. Rising rates have priced many younger buyers out of the market and made it more difficult for others to obtain approval for a loan. That’s not an issue for retirees who can use proceeds from the sale of their primary home to make an all-cash offer, which is often more attractive to sellers.
Retirees also have the ability to cast a wider net than younger buyers, whose choice of homes is often dictated by their jobs or a desire to live in a well-rated school district. While the U.S. median home price has soared more than 40% since the beginning of the pandemic, prices have risen more slowly in parts of the Northeast and Midwest, Jones says. “We have seen the popularity of Midwest markets grow over the last few months because out of all of the regions, the Midwest tends to be the most affordable,” she says. “You can still find affordable homes in areas that offer a lot of amenities.”
Meanwhile, selling your home may be somewhat more challenging than it was during the height of the pandemic, when potential buyers made offers on homes that weren’t even on the market. The Mortgage Bankers Association reported in October that mortgage purchase applications slowed to the lowest level since 1995, as the rapid rise in mortgage rates has pushed many potential buyers out of the market. Sales of previously owned single-family homes fell a seasonably adjusted 2% in September from August and were down 15.4% from a year earlier, according to the National Association of Realtors. “As has been the case throughout this year, limited inventory and low housing affordability continue to hamper home sales,” NAR chief economist Lawrence Yun said in a statement.
However, because of tight inventories, there’s still demand for homes of all sizes, Jones says, so if your home is well maintained and move-in ready, you shouldn’t have difficulty selling it. “The market isn’t as red-hot as it was during the pandemic, but there’s still a lot to be gained by selling now,” she says.
Other costs and considerations
If you live in an area where real estate values have soared, moving to a less expensive part of the country may seem like a logical way to lower your costs in retirement. While the median home price in the U.S. was $394,300 in September, there’s wide variation in individual markets, from $1.5 million in Santa Clara, Calif., to $237,000 in Davenport, Iowa. But before you up and move to a lower-cost locale, make sure you take inventory of your short- and long-term expenses, which could be higher than you expect.
Selling your current home, even at a significant profit, means you will incur costs, including those to update, repair and stage it, as well as a real estate agent’s commission (typically 5% to 6% of the sale price). In addition, ongoing costs for your new home will include homeowners insurance, property taxes, state and local taxes, and homeowners association or condo fees.
Nicholas Bunio, a certified financial planner in Berwyn, Pa., says one of his retired clients moved to Florida and purchased a home that was $100,000 less expensive than her home in New Jersey. Florida is also one of nine states without income tax, which makes it attractive to retirees looking to relocate. Once Bunio’s client got there, however, she discovered that she needed to spend $50,000 to install hurricane-proof windows. Worse, the only home-owners insurance she could find was through Citizens Property Insurance, the state-sponsored insurer of last resort, and she’ll pay about $8,000 a year for coverage. Her property taxes were higher than she expected, too. When it comes to lowering your cost of living after you downsize, “it’s not as simple as buying a cheaper house,” Bunio says
Before moving across the country, or even across the state, you should also research the availability of medical care. “Oftentimes, those considerations are secondary to things like proximity to family or leisure activities,” says John McGlothlin, a CFP in Austin, Texas. McGlothlin says one of his clients moved to a less expensive rural area that’s nowhere near a sizable medical facility. Although that’s not a problem now, he says, it could become a problem when they’re older.
If you use original Medicare, you won’t lose coverage if you move to another state. But if you’re enrolled in Medicare Advantage, which is offered by private insurers as an alternative to original Medicare, you may have to switch plans to avoid losing coverage. To research the availability of doctors, hospitals and nursing homes in a particular zip code, go to www.medicare.gov/care-compare.
At a time when many seniors suffer from loneliness and isolation, a sense of community matters, too. Bunio recounts the experience of a client who considered moving from Philadelphia to Phoenix after her daughter accepted a job there. The cost of living in Phoenix is lower, but the client changed her mind after visiting her daughter for a few months. “She has no friends in Phoenix,” he says. “She’s going on 61 and doesn’t want to restart life and make brand-new connections all over again.”
Time is on your side
Unlike younger home buyers, who may be under pressure to buy a place before starting a new job or enrolling their kids in school, downsizers usually have plenty of time to consider their options and research potential downsizing destinations. Once you’ve settled on a community, consider renting for a few months to get a feel for the area and a better idea of how much it will cost to live there. Bunio says some of his clients who are behind on saving for retirement or have high health care costs have sold their homes, invested the proceeds and become permanent renters. This strategy frees them from property taxes, homeowners insurance, homeowners association fees and other expenses associated with homeownership
The boom in housing values has boosted rental costs, as the shortage of affordable housing increased demand for rental properties. But thanks to the construction of new rental properties in several markets, the market has softened in recent months, according to Zumper, an online marketplace for renters and landlords. A Zumper survey conducted in October found that the median rent for a one-bedroom apartment fell 0.4% from September, the most significant monthly decline this year.
In 75 of the 100 cities Zumper surveyed, the median rent for a one-bedroom apartment was flat or down from the previous month. (For more on the advantages of renting in retirement, see “8 Great Places to Retire—for Renters,” Aug.)
Aging in place
Even if you opt to age in place, you can tap your home equity by taking out a home equity line of credit, a home equity loan or a reverse mortgage. At a time when interest rates on home equity lines of credit and loans average around 9%, a reverse mortgage may be a more appealing option for retirees. With a reverse mortgage, you can convert your home equity into a lump sum, monthly payments or a line of credit. You don’t have to make principal or interest payments on the loan for as long as you remain in the home.
To be eligible for a government-insured home equity conversion mortgage (HECM), you must be at least 62 years old and have at least 50% equity in your home, and the home must be your primary residence. The maximum payout for which you’ll qualify depends on your age (the older you are, the more you’ll be eligible to borrow), interest rates and the appraised value of your home. In 2024, the maximum you could borrow was $1,149,825.
There’s no restriction on how homeowners must spend funds from a reverse mortgage, so you can use the money for a variety of purposes, including making your home more accessible, generating additional retirement income or paying for long-term care. You can estimate the value of a reverse mortgage on your home at www.reversemortgage.org/about/reverse-mortgage-calculator.
Up-front costs for a reverse mortgage are high, including up to $6,000 in fees to the lender, 2% of the mortgage amount for mortgage insurance, and other fees. You can roll these costs into the loan, but that will reduce your proceeds. For that reason, if you’re considering a move within the next five years, it’s usually not a good idea to take out a reverse mortgage.
Another drawback: When interest rates rise, the amount of money available from a reverse mortgage declines. Unless you need the money now, it may make sense to postpone taking out a reverse mortgage until the Federal Reserve cuts short-term interest rates, which is unlikely to happen until late 2024 (unless the economy falls into recession before that). Even if interest rates decline, they aren’t expected to return to the rock-bottom levels seen over the past 15 years, according to a forecast by The Kiplinger Letter. And with inflation still a concern, big rate cuts such as those seen in response to recessions and financial crises over the past two decades are unlikely.
Note: This item first appeared in Kiplinger’s Personal Finance Magazine, a monthly, trustworthy source of advice and guidance. Subscribe to help you make more money and keep more of the money you make here.
The landscape of real estate is undergoing significant transformations in 2024, driven by a confluence of technological advancements, shifting market dynamics and evolving consumer behaviors.
1. Technology 2024: Proptech challenges and profitability pursuit
The proptech sector, a technological cornerstone of the real estate space heavily reliant on venture capital, has encountered formidable challenges in the past year. The Federal Reserve‘s rate hikes and a general slowdown in venture capital investment have created a challenging environment, leading to layoffs and financial struggles for prominent companies. The housing market’s conditions, characterized by soaring prices and limited availability, have compounded these challenges.
As we enter 2024, proptech companies are likely to place an unprecedented emphasis on monitoring their balance sheets, with a sharp focus on immediate-term profitability. The year will unfold with a strategic shift in business models, emphasizing the expansion of product offerings and investments in consumer education to adeptly navigate the housing market slowdown. Technology is set to emerge as a crucial tool in such sectors as the rental segment, with the advent of online rental screening software, enhancing efficiency, rent payment reporting and thwarting fraudulent activities.
Despite uncertainties, optimism is likely to pervade the industry, with companies leveraging partnerships and eyeing potentially lucrative IPOs in the future. The resilience and innovation demonstrated by the formation of new companies underscore the sector’s potential to thrive in both adversities and favorable conditions.
The technology likely to have the biggest impact in 2024
Data-driven property management: Real-time insights into property performance optimize rents, maintenance schedules and tenant satisfaction.
Remote work: Technology enablement creates more flexibility and freedom.
Cybersecurity in real estate: Increasing investments protect sensitive property and financial data in the digital realm.
Artificial intelligence (AI) and predictive analytics: Revolutionizing decision-making with data-driven insights, predictive property values and investment opportunities, expediting the process by removing manual tasks.
Augmented reality (AR) and virtual reality (VR): Transforming property viewing experiences with virtual tours and enhanced property visualization.
2. The emergence of secondary markets will challenge the traditionally popular locales in 2024
In a notable departure from its traditionally local focus, more than ever real estate agents in local markets are needing to think more nationally as opposed to regionally. This shift is propelled by the increased migration of people, as evidenced by a variety of data points. RentSpree user statistics have showcased a significant spread of rental applicants across the nation. Between 2021 and 2023, approximately 17% of rental applicants sought housing in other states, reflecting an upward trend from 14% in 2020 and 12% in 2019. This trend is likely to intensify this coming year.
This nationalization is underpinned by two fundamental factors. First, housing affordability has plummeted to its lowest level in over 30 years. The combination of escalating home prices and rapid increases in borrowing costs has prompted individuals to explore housing options beyond their current locations. Secondly, remote and hybrid work options, increasingly prevalent since the pandemic, are becoming a permanent fixture of the professional landscape.
As we prepare for 2024, the challenges of affordability and the evolving nature of work will foster increased migration to secondary markets nationwide. This shift not only holds promise for relative affordability but also aligns with lifestyle preferences. The more nationalized approach to real estate will impact organizations supporting industry professionals and the individuals actively servicing the sector.
3. Multiple listing services need to become the source of truth for rentals
Multiple listing services (MLSs), traditionally recognized as the source of truth in the for-sale segment, will more so than ever face the imperative to extend this role to the rental market in 2024. The current absence of rental listings on most MLSs has significant repercussions, resulting in financial losses for both agents and tenants. More than 60% of rental properties are absent from MLSs, curtailing exposure and profitability for agents and landlords alike.
Advocating for standardized data for rental listings, diverse compensation models for agents and the provision of reliable and timely information for renters will be key, especially this coming year. Rentals will continue to play an increasingly important role in the real estate market and people’s lives given the severe affordability issues permeating the for-sale sector. The inclusion of rentals in MLSs stands to streamline the rental process, minimize delays and instill efficiency. The benefits extend to increased agent commissions, strengthened sales pipelines and a reduction in fraudulent activities.
Bright MLS, one of the largest MLSs nationwide, is leading the way and has integrated rental listings with commendable success. This proactive move serves as a testament to the positive outcomes achievable through aligning MLSs with the evolving dynamics of the real estate landscape.
4. Flourishing during challenging times: A tale of two (interconnected) markets
The prospects of homeownership in 2024 remain elusive for many. With rates hovering between 7% and 8% and single-family home prices still at record highs, the financial barriers to purchasing a house are and will continue to be formidable. The cost differential between buying and renting, with the former averaging 52% higher, underscores the financial challenges associated with homeownership.
In contrast, the rental market is emerging as a pivotal player, presenting increased choices and decreased competition for renters. Construction of new units, as highlighted by a recent Zumper National Rent Report, contributes to a market dynamic where prices will continue to decrease in numerous regions. As a result, the focus in 2024 further pivots towards the rental market, offering a lifeline to those seeking shelter as well as those servicing the housing market.
This paradigm shift in the real estate landscape presents a unique opportunity for real estate professionals. With the for-sale market navigating a precarious juncture marked by compensation lawsuits and affordability concerns, the emphasis in 2024 will be on generating leads and income through other avenues, such as the rental market. Rentals, therefore, will not just help to bridge the gap for agents during challenging times but also serve as an investment into the future for both new and seasoned real estate professionals.
5. Building a fairer financial future toward homeownership
With affordability as the primary concern heading into 2024, tools intended to support greater financial empowerment will continue to gain prominence this coming year. Rent payment reporting is one of the initiatives that will play a more prominent role in fostering a fairer financial future for all participants in the real estate ecosystem.
Major players in the mortgage industry, such as Fannie Mae and Freddie Mac, have initiated programs to incorporate rent payments into credit histories. Fannie Mae’s pilot program, extended until December 2024, signifies a commitment to exploring the far-reaching implications of including rent payment history in credit reporting.
This inclusion carries profound empowering potential, influencing loan approvals and addressing racial disparities prevalent in the housing market. As we chart the trajectory towards a more equitable financial future, additional private sector solutions are likely to emerge in 2024 and become instrumental in facilitating this transformative change.
In summary, the real estate landscape of 2024 is marked by a dynamic interaction of technological advancements, market dynamics and socioeconomic influences. The various trends mentioned above collectively shape a narrative of an industry undergoing constant change. Success in 2024 will hinge on the capacity to embrace change and capitalize on emerging opportunities.
Michael Lucarelli is the CEO and co-founder of RentSpree.
[Editor’s note: This is part of the category product review series for the small landlord property management software sector. Originally published in the Geek Estate Mastermind.]
Syndication is a necessary component of succeeding for any property management software vendor, short of a massive built-in audience of renters. After all, a landlord’s goal is to find a tenant for their property as soon as possible—which generally requires advertising a rental listing far and wide.
The five companies covered in the mini-series: Zumper Pro, Airbnb, Avail, Cozy, Zillow Rental Manager. All except Airbnb do some level of syndication of long-term rentals. RentecDirect and TurboTenant are also included below as a result of membership in the Mastermind.
Below is a snapshot of property management software vendors’ syndication partners…
Note: I am keeping an updated spreadsheet available to members of the Geek Estate Mastermind. If you work for a property management software provider and wish to have your company included, please have your company’s founder apply/join.
It’s true that those who own the marketplace (demand) and own the tools have an unfair advantage when it comes to serving landlords. Thus, Zumper and Zillow do hold a strategic customer acquisition advantage compared to Cozy and Avail due to traffic and brand goodwill generated from their rental search products.
Zillow Group, Realtor.com, and CoStar all have significant resources to deploy. However, one significant challenge is getting those leadership teams on board with focusing on low-value (free, in most cases) landlords. They all have larger revenue streams elsewhere, so it’s unclear when, or if, rentals will move up the priority list. Redfin is the dark horse in this race. It seems inevitable that it will eventually broaden its rentals work beyond WalkScore.
[Editor’s note: This is an excerpt from the conclusions from the category product review series for the small landlord property management software sector. It is an answer to one of the questions posed in the mini-series introduction. Originally published in the Geek Estate Mastermind.]
It’s just a matter of time, particularly with Covid-19’s destruction on the short-term rental sector. Resources and capital are obviously not an issue, which is even more true after Silver Lake and Sixth Street Partners put another $1 billion in Airbnb to mitigate the fallout from the COVID-19 coronavirus. CEO Brian Chesky mentioned that “the future of Airbnb will focus on three core products: hosts, long-term stays and Airbnb Experiences.”
But going long-term does present a challenge with product confusion. That’s why I believe it will come via a joint venture with an existing long-term rentals portal rather than putting that inventory on its own site. Short- and long-term rentals are regulated differently, and there’s not a ton of overlap between DIY landlords doing both short- and long-term rentals, though Covid-19 is going to flip that a bit—as the short-term rentals market tanks due to travel restrictions, a portion of that inventory is moving into the long-term rental market. Zumper would seem to be a natural partner that aligns well. When that happens, they will nearly instantly rival Zillow as the place to go.
Longer-term rentals have already made its way into the product…in the form of a “Monthly Stays” tab on their primary search. Don’t say I didn’t give you advance warning.
[Editor’s note: This is an excerpt from the conclusions from the category product review series for the small landlord property management software sector. It answers two of the questions posed in the introduction. Originally published in the Geek Estate Mastermind.]
Are backend landlord tools and front-end rental search products in conflict with each other?
These two will continue converging into one another. Zumper and Zillow are starting from the search side, while Avail and Cozy are on the flip side. Airbnb is a different animal altogether. There are areas where goals conflict. For instance, first in and banned evictions are both loved by tenants but hated by landlords. That said, those are both regulation issues. One area where they align is that tenants want to search a comprehensive supply and landlords want to reach the largest possible renter audience (as long as they are qualified).
Will Cozy and Avail end up adding a search experience or syndicating to more partners?
I believe both will continue to focus on syndication, particularly Avail because it does not have the benefit of a large audience on its own (Zumper, Zillow, and Cozy all have access to leverage). Given Cozy operates inside the confines of CoStar, it is far more likely to be built out as a benefit to the company’s customers already using its broad search assets (especially following the acquisition of RentPath), rather than trying to win a syndication battle.
[Note from editor: The “Mastermind Showcase” highlights companies and news from members of the GEM. Today’s showcase: Zumper.]
A free end to end online search marketplace for landlords and tenants that attracts more than 80 million people each year. They help landlords market to millions, receive rent digitally, and find reliable tenants and provide renters the ability to find, apply, and reserve apartments.
They calculate median rents with data from over a million active listings across the the 100 largest cities by population and another 300 neighboring cities.
Instarent, their newly released free online leasing suite for landlords, provides virtual touring options, integrated messaging, digital lease signing and next-day online rent payment. Zumper and Matterport conducted a survey that shows 72% of the population have already adapted to the COVID-19 driven digital experience of renting sight unseen.
They have raised over $140 million in funding since their launch in 2012, grew with the help of the acquisition of Padmapper, and a strategic partnership with Facebook Marketplace. They were included in our product category review series for small landlord property management software.
Represented in GEM by: Anthemos Georgiades
What we like: Renters can reserve a listing online, which is then removed from the marketplace. Its transaction model is differentiated from lead generation models incentivized to display as many listings as possible regardless of quality or status.