Jul252016

Rising prices allows home sellers to cash out and extinguish debts

Many people sell when prices rise high enough for them to retire, move up, or extinguish their debts.

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Many people imagine the property ladder as a progression from a condo near work, to a house in the suburbs, to a mansion by the beach. Many people buy entry-level housing, and when prices rise high enough for them to pocket a 20% down for a larger property, they participate in the move-up market. If their income grew while they lived in their entry-level home, the step up can be quite luxurious. If their income didn’t go up much, they are probably better off refinancing into a lower-cost mortgage and staying where they are.

The housing bubble severely disrupted the housing market. The mania prompted many people to buy into a market frenzy and many others to refinance their homes at peak price levels. As a result, many people were trapped beneath their debts when house prices crashed. (See: Millions of homeowners trapped in entry-level homes for over a decade)loan-modification-rescinded

Many of those who bought or refinanced at the peak used unstable loan products, and they couldn’t afford to service the amount they borrowed. In an act of self-preservation, lenders often modified these loans to make the debt service manageable, but it didn’t make the debt — or the house — truly affordable. In 2013 I posited that the Loan modification entitlement will be rescinded as prices near the peak, and later that The final resolution of loan modifications will push people out of their homes. This final act is playing out now.

The people affected by the rising costs of their loan modifications will not likely end up as foreclosures. The banks wait to put the screws to people until after they have equity and the homeowner can sell for enough to repay the bank; after all, the bank doesn’t want to lose money. This slow exodus won’t impact prices in the housing market much, but it does impact the lives of many families as they are subtly pushed out of their homes. After years of struggle, many of these people will take a step down the property ladder into a house they can truly afford.

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For those who were prudent with their mortgage debt, rising prices — a necessity to bail out their neighbors and the banks — creates a windfall of home equity. Some are already tapping this equity in a return to bad habits, but some are taking the opportunity to cash out and go on with their lives.

Cashing out: Rising home prices are creating new opportunities for homeowners nearing retirement

July 24, 2016, By Jeff Collinssenior_eating_dog_food

Gene Tuey’s middle-school-age kids took a vote. They wanted Dad home more.

So the Orange County native quit his 65-hour-a-week job as a liquor distributor and put his Ladera Ranch house up for sale.

If Tuey, 58, gets his $1.2 million asking price, he can buy a house with a big yard in Nashville, Tenn., and still have enough left to launch a new career as a full-time real estate investor.

“Things just all lined up,” said Tuey’s wife, Valinda, 51. “For him being unhappy in his work, the kids being the right age (to move) and property values having gone up, all the ducks are in a row.”

Since Orange County homes are so expensive, and since many people buy their dream homes with only 10-15 years before they retire, many people don’t manage to pay the property off, allowing them to retire in place. Instead, they take the accumulated equity, sell out, and go where the cost of living is low. Giving up Orange County is difficult, but a huge savings on housing can make it worthwhile.

Four years of rising home prices are creating new opportunities for a lot of baby boomers and others nearing retirement.

Some couples are downsizing. Others are getting more house for their money in cheaper markets in Idaho, Tennessee, Florida, Arizona and Texas. …Many didn’t save enough for retirement. … “They’re sitting on a nest egg,” Klein said. “They realize at this point there’s more to life than a five-bedroom house with a backyard and a pool they don’t use any more. … Now that prices are back up, people are taking advantage.”

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Jenean Hill, a First Team Real Estate agent in Lake Forest, said she’s had at least five clients in the past few years “take their California money” and move to towns out of state with a slower pace, affordable housing, no drought and no earthquakes.

“People want to live in a place with a strong sense of community when they retire,” Hill said. …

Bob and Jennifer Hochstadter said their decision to downsize two years ago “took the pressure off” financially.

The couple sold their two-story, five-bedroom house in Laguna Niguel for just over $1 million and moved into a one-story rental house they owned that’s about half the size.

“Not only did we cash out, but we got to keep the cash,” said Bob Hochstadter, 65.

I give this family credit for finally making the right financial decision. The discussions about selling their dream home to take a step down the property ladder could not have been easy, but it was clearly the right choice. They cut their housing costs significantly, and now they will have the extra money to do all the things they gave up to own that huge home loan.

Many others will choose to hang on because the moment they rise above water, the stress of being a loanowner almost immediately turns to greed about making enough money to buy a nice move-up. Unfortunately for them, many others will not keep enduring the high monthly payments when they emerge, and these newly-equitied owners will get out as soon as they can and execute a move-down trade. These new listings and move-down trades will pressure higher price points and create more demand at lower ones.

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Trading the condo for a house

In March, Patti Odlum, 55, and her husband, Don Yovanovich, traded their two-bedroom condo in Lake Forest for a three-bedroom house in Boise, Idaho, with an attached garage on a big lot.

They sold the condo for $405,000 and paid $185,000 for the house. Their new home is 10 minutes from downtown Boise, home to Boise State University, and 10 minutes from Meridian, a growing area that resembles Irvine, Odlum said.

“We have a beautiful home here,” Odlum said. “For $185,000, we wouldn’t have been able to have that in Orange County.”

$185,000 won’t buy a 475 SF condo in Irvine.

[listing mls=”OC16161700″]