Did you buy your home many years ago? Or have you been in your current place for just a few years?
There are plenty of reasons to sell and seek out a house that is smaller and one that fits your lifestyle. On the flip side, there are reasons you may want to stay in your home.
Now that you are in retirement or are nearing retirement, the mortgage may be paid off or you might have a significant equity stake in your primary residence.
Much goes into a decision to sell your home, and the process may seem daunting if you have lived in your house for years.
Here are some questions to think about.
Let’s look at some of the advantages and disadvantages of moving and downsizing. These ideas are not all-inclusive but will help organize your thoughts.
Reasons you might consider downsizing
If you are still paying on your mortgage, sale of your primary residence could wipe out your debt and leave you with cash. That’s cash you may put towards retirement, travel, savings, or any number of items.
A smaller home that’s better adapted to your lifestyle may also reduce expenses such as utilities, further reducing your monthly cash outflow. Reducing your monthly upkeep gives you options. It will allow you to either save money or spend on lifestyle choices that are fun and enrich retirement.
If you are paying over 30% of your income on housing and maintenance, you might consider a home that puts less pressure on your budget.
Not surprisingly, boomers saw this as a more important factor.
What about stairs? You enjoy having the distance and solitude of a second floor, but you now find that stairs are becoming increasingly challenging. The thought of having everything on one floor has become increasingly appealing.
Is it time to consider a retirement community with an active association that might reduce the loneliness that sometimes accompanies retirement?
A new adventure is always exciting. You are an explorer in a new land. But there are always drawbacks to any proposition you are considering. Let’s go in with our eyes open.
Potential drawbacks to downsizing
Various sites online can help you estimate the value of your home, but these are simply ballpark estimates. A good realtor can help you realistically estimate the value of your home.
If you are considering a new home, a smaller place can reduce utilities, but factor in the cost of a monthly HOA if the community you are interested in is governed by one.
As with any tax matters, complexities may arise. Please feel free to consult with your tax advisor.
According to Moving.com, the average cost of a long-distance move is $4,890, based on a two to three-bedroom move of approximately 7,500 pounds with a distance of 1,000 miles.
You may miss the big family room or dining room in smaller quarters, and you’ll have less space when family or friends join you for an extended visit.
Many folks will decide to stay in their home. For others, a change is welcome. If you’re thinking about the possibilities of downsizing, give me a call and I will be happy to share our experience. Our goal is to help provide you with some of the advantages and drawbacks as you consider a life-changing decision.
Thinking about the markets and the economy
Table 1: Key Index Returns
Dow Jones Industrial Average
S&P 500 Index
Russell 2000 Index
MSCI World ex-USA*
MSCI Emerging Markets*
Bloomberg Barclays US Aggregate Bond Total Return
Source: MSCI.com, Bloomberg, MarketWatch
MTD: returns: Apr 30, 2021—May 28, 2021
YTD returns: Dec 31, 2020—May 28, 2021
*in US dollars
Inflation worries surface
Inflation has not been a persistent and serious threat to the economy since the 1970s and early 1980s.
The Fed knows how to defeat inflation. Raise interest rates to onerous levels and quash demand in the economy via a serious recession. In turn, companies lose the ability to rapidly boost prices, and employees no longer have the leverage to demand outsized wage hikes.
We don’t want to repeat that cycle.
At a minimum, however, we are starting to see upward pressure on prices. How long might this last?
The Consumer Price Index jumped 0.8% in April. Remove food and energy, and so-called core inflation surged 0.9%, the fastest reading in 40 years (U.S. BLS, St. Louis Federal Reserve).
Fed officials continue to insist any increase will be “transitory,” their word of choice in describing what they see as a temporary rise in prices tied to the reopening of the economy.
That may be the case for hotels and airlines that are set to see a jump in summer bookings.
But there are issues that are influencing pricing decisions on the production side of the economy, too.
We have learned that huge cash infusions via government stimulus will boost demand. We are seeing it in record retail sales reported monthly by the U.S. Census Bureau. Yet, production has been slower to rebound.
A May 13th story in the Wall Street Journal, “Empty Lots, Angry Customers: Semiconductor Crisis (Shortages) Throws Wrench Into Car Business,” sums up what’s happening in the auto industry and highlights the problems auto buyers are facing. Or here is another look from a May 11th CNBC feature: “U.S. Faces Major Shortages in Everything From Labor to Semiconductors, Lumber and Packaging Material.”
In April, the National Association of Homebuilders said that lumber shortages are leading to skyrocketing lumber prices, adding an average of $36,000 to the cost of a new home over the last year.
Government spending and a super accommodative Federal Reserve argue for a more permanent and unwanted rise in inflation. However, longer-term disinflationary trends, i.e., demographic trends and globalization, remain in place. Further, labor unions, which helped drive a wage/price spiral in the 1970s, don’t have the power they once had.
Where do we stand? There are reputable economists on both sides of the inflation debate. No one wants to see a return to the double-digit inflation problems of the 1970s, and the Fed is more likely to react than was the case a generation ago.
But we don’t expect the Fed to lift interest rates anytime soon, as central bankers continue to insist their focus is on full employment, and any rise in pricing pressures is temporary. Nonetheless, the best news on inflation is probably behind us.
As always, I trust you’ve found this review to be educational and informative.
Please remember that it is our job to assist you. If you have any questions or would like to discuss any matters, please feel free to give me or any of my team members a call.
As we head into the second half of 2021, you will begin to see some exciting developments regarding our continued growth and our efforts to improve your overall experience at Eagle Capital. We are a Family Serving Families, and we value the loyalty and trust you have placed in us.
We are honored and humbled that you have given us the opportunity to serve as your Wealth Advisors. We will never take that opportunity for granted.
The Dow Jones Industrial Average (DJIA), commonly known as “The Dow” is an index representing 30 stock of companies maintained and reviewed by the editors of the Wall Street Journal. The NASDAQ composite is an unmanaged index of securities traded on the NASDAQ system. The S&P 500 is an unmanaged index of 500 widely held stocks that is generally considered representative of the U.S. stock market. The Russell 2000 Index measures the performance of the 2,000 smallest companies in the Russell 3000 Index, which represent approximately 8% of the total market capitalization of the Russell 3000 Index. The MSCI ACWI ex USA Investable Market Index (IMI) captures large, mid and small cap representation across 22 of 23 Developed Markets (DM) countries (excluding the United States) and 24 Emerging Markets (EM) countries*. With 6,211 constituents, the index covers approximately 99% of the global equity opportunity set outside the US. The MSCI Emerging Markets is designed to measure equity market performance in 25 emerging market indices. The index’s three largest industries are materials, energy, and banks. The Bloomberg Barclays US Aggregate Bond Index is a broad-based flagship benchmark that measures the investment grade, US dollar-denominated, fixed-rate taxable bond market. The information contained in this report does not purport to be a complete description of the securities, markets, or developments referred to in this material. The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete. Any opinions are those of William Y. Rice III and not necessarily those of Raymond James. Expressions of opinion are as of this date and are subject to change without notice. There is no guarantee
that these statements, opinions or forecasts provided herein will prove to be correct. Investing involves risk and you may incur a profit or loss regardless of strategy selected. Keep in mind that individuals cannot invest directly in any index, and index performance does not include transaction costs or other fees, which will affect actual investment performance. Individual investor’s results will vary. Past performance does
not guarantee future results. Future investment performance cannot be guaranteed, investment yields will fluctuate with market conditions. Unless certain criteria are met, Roth IRA owners must be 59½ or older and have held the IRA for five years before tax-free withdrawals are permitted. Additionally, each converted amount may be subject to its own five-year holding period. Converting a traditional IRA into a Roth IRA has tax implications. Investors should consult a tax advisor before deciding to do a conversion. Matching contributions from your employer may be subject to a vesting schedule. Please consult with your financial advisor for more information.
As you embark on your wealth management journey, you may wonder whether financial advisors truly add value to your investments. By answering these five essential