By: Sandra Block
August 3, 2011
Paul Trigili, an information technology professional in Las Vegas, is 65, has back problems and would like to retire at the end of the year. There's just one thing standing in his way: his house.
Trigili bought his home three years ago for $350,000. At the time, he thought it was a good deal, because the home originally was priced at $450,000. Today, it's valued at $184,000.
Trigili made a large down payment when he bought the home, so he doesn't owe more on his mortgage than the home is worth. But his plans to sell his home and use the proceeds for retirement income have been placed on indefinite hold.
"We're pretty much stuck here," Trigili says. "Now, I don't look at retirement at all. I'd like to work as long as I can."
Nearly 32% of adults over age 50 say their home has declined substantially in value over the past three years, according to a survey by AARP. Many won't recover those losses by the time they reach retirement age, says Jay Butler, associate professor of real estate at the W.P. Carey School of Business at Arizona State University.
"Nobody sees rapid appreciation in home values over the next 10 years," he says. As a result, he adds, "a lot of folks will postpone retirement."
Declining home equity is a problem that not only can force would-be retirees to keep working, it can complicate their eventual retirement in a range of ways. Many retirees, for example, have long counted on the proceeds from the sale of their homes to help pay health care costs and long-term-care expenses that they'll inevitably face.
Such concerns have led Gary Pagliaro, 58, of Stratford, Conn., to think he might have to work longer than expected.
Pagliaro had planned to retire at 62, sell his home and buy another in the Southwest, where the cost of living is lower than in the Northeast. When he made those plans, his home was valued at $325,000 to $350,000. Now, he thinks he'd be lucky to sell it for $225,000.
Pagliaro, an accountant, says he and his wife, Elizabeth, had hoped to buy a single-family home in Arizona or Nevada, but now they're considering buying a condo instead. And unless their home's value rebounds, he may work longer before relocating to the Southwest.
"Depending on what happens over the next four years, I might have to rethink the 62 retirement age," he says.
Younger homeowners who have been trapped by declining home values are also reconsidering their retirement goals.
In 2003, Gene Suppell, 51, and his wife, Patricia, 53, bought a home and a community magazine in Pompano Beach, Fla. Their plan was to sell the home and the business in 15 years, downsize and use the proceeds for retirement. Given the rate of home-price appreciation at the time, Suppell says, that didn't seem like an unreasonable goal.
Now, they owe more on their mortgage than their house is worth. Suppell lost his job as a legal IT professional during the downturn and has been working part time for two years. The couple have exhausted their savings and no longer expect their home to provide retirement income.
"In 10 years, we'll be lucky to get back to where the value of the house meets the mortgage value," Suppell says.
When the couple bought their home, Suppell says, conventional wisdom held that buying a home was one of the best ways for middle-class Americans to build wealth.
"Now, it seems the paradigm is shifting," he says. "They're saying your home is not an ATM. That's not what they were saying seven years ago."
The impact on long-term care
The housing meltdown also has created a dilemma for seniors who are unable to live independently or fear they will need help in the future.
Even before the housing boom, proceeds from the sale of a home were a significant source of funding for long-term care. That's still the case, analysts say, but the decline in home prices has left many seniors with less money to work with.
The average occupancy for senior housing, which includes assisted living and retirement communities, has declined from 91.8% in the fourth quarter of 2006, to 87.9% in the first quarter of this year, according to the National Investment Center for the Seniors Housing & Care Industry. The sector has started to recover, but "we're by no means back to the levels we were" in 2006, before the housing market collapsed, says Robert Kramer, president of the NIC.
The decline in home equity has been particularly challenging for continuing-care retirement communities, or CCRCs, which offer a combination of independent living and long-term care. These facilities charge entrance fees ranging from $100,000 to $1 million, in addition to monthly fees. Most people rely on the proceeds from their homes to pay the fees, says Tom Wetzel of the Retirement Living Information Center.
Today, "People want to move in, but they can't financially do it," he says.
Some continuing-care communities are working with real estate agents to help seniors sell their homes; others will contribute to the cost of fixing up homes so they're more attractive to potential buyers, Kramer says. Still others are allowing seniors to spread the entrance fee over several months.
ACTS Retirement-Life Communities, which owns 23 such communities in eight states, is "offering incentives we never have before and probably never will again," says spokesman Michael Smith. Those incentives include reduced entrance fees, payment deferrals and help with closing and moving costs, Smith says.
Residents of assisted living don't typically pay a large entrance fee, but rent ranges from about $2,000 to more than $5,000 a month. Because Medicare doesn't cover assisted living, seniors typically rely on a combination of savings, Social Security, pensions and proceeds from the sale of their homes, Kramer says.
Some assisted-living providers offer bridge loans to help cover costs until residents' homes sell. To bridge the gap left by lost equity, they're helping seniors determine whether they qualify for veterans' benefits and explaining how seniors can tap life insurance policies to pay assisted-living costs.
They're also emphasizing the benefits of doubling up.
At Sunrise Senior Living, one of the nation's largest assisted-living providers, residents can reduce their monthly rent by up to 35% by sharing a suite, says Kelly Myers, senior vice president of sales. About 30% of Sunrise residents share a suite, which the company says represents a "noticeable uptick" since 2009. (Sunrise would not provide specifics.)
Emeritus Senior Living, the nation's largest provider of assisted living, also has seen an increase in what it calls "friendship suites," says Jayne Sallerson, executive vice president of sales and marketing. Sharing a suite is "an affordable option that makes their money last longer," she says.
Seniors, meanwhile, are learning that if they want to move, they may need to lower their expectations about how much they'll get for their homes. Waiting for home prices to recover isn't an option for many retirees. Most CCRCs won't accept seniors who can't live independently, so seniors must move in while they're in good health. And many seniors go into assisted living because they can no longer care for themselves, Kramer says.
Ralph Collins, 69, says he and his wife, Jan, sold their home in Brevard, N.C., last year so they could move into an ACTS Retirement-Life community in Columbus, N.C. Collins says they sold their home in 90 days because it was in pristine condition and competitively priced. So competitive, in fact, that the Collinses lost money on the home, which they had owned for 10 years. But Collins doesn't have any regrets.
"We had 10 great years -- what's that worth?" he says. "The overall real estate market is depressed. You have to recognize, it is what it is."
John McCann, 64, and his wife, Christy, moved into an ACTS community in Rock Hill, S.C., last year because McCann's family has a history of Alzheimer's disease and cancer. To pay the entrance fees, the McCanns sold their house in Greenville, N.C., for considerably less than comparable homes on the market, McCann says.
The house sold in six months.
A good investment?
A recent survey by the National Association of Home Builders (NAHB) found that 75% of Americans still believe a home is the best long-term investment they can make, despite the ups and downs of the housing market.
"Maybe it's not so much the cash cow it was five years ago, but it (homeownership) is still the sort of thing they want to do for the long term," says Stephen Melman, director of economic services for the NAHB.
But some seniors, faced with sharply devalued homes and downsized retirement dreams, are questioning that long-held belief.
Pagliaro says the diminished prospect for home appreciation is a frequent topic of conversation among his friends.
"In general, all of us feel it's not going to be like it was," he says. "You're going to pay to live in a house, but you won't be able to depend on it as a retirement asset."
Trigili says homeownership may still be a good investment for people in their 30s and 40s who plan to live in their homes for a long time. But he says his current home will be his last.
"If I can get back to anywhere near what I paid for this home, we're going to sell it and move to a condo and rent," he says. "I'll put my cash in the bank and invest it. We're pretty much done with homeownership."