Why do long-time homeowners rent when they can afford to buy? For more and more older adults, it’s simple: less responsibility with more money to spend.
PLACERVILLE, Calif. – Jack called me last week to say he and his wife Jill wanted to sell their home in El Dorado Hills. They have been longtime friends and clients who over the last 20 years I have helped with three previous moves.
“Where to this time?” I asked.
“We’re going to Austin to be closer to our daughter and grandchildren,” Jack said.
I was a bit disappointed. I was losing another valued client. Most of my listings over the past three years have been clients relocating to another state rather than buying another home in the county. El Dorado County continues to attract buyers from other counties, but an increasing number of county sellers today are choosing their next home in another state.
During our conversation I asked if they were already working with an agent in Austin or if they needed my help with an agent referral.
“Thanks, Ken, but we have decided not to buy another house. We are convinced that renting is our best long-term option.”
“How could renting be an option?” I asked. “You have been homeowners for 40 years. Nobody in your financial situation rents.”
“Get over it, Ken. Check it out. More people our age are choosing to sell and rent.”
I wasn’t convinced. Homeownership is programmed into my DNA. Helping families buy a home is what I have been doing for 50 years. Seventy million homeowners are building wealth by owning a home. Owning a home is the American Dream. Everyone wants to own a home. Well, nearly everyone.
After researching, I was a bit surprised to discover that a growing number of retirees are selling their homes and renting.
According to a study by mortgage giant Freddie Mac, six million baby boomers, born before 1961, who already own a home are more likely to sell and rent than sell and buy within the next three years. Another study by the Joint Center for Housing finds the number of new 55-and-up renters is more than three times the number of new renters of any other age group.
Pew Research analyzed why a growing number of retirees are selling and renting.
- Less maintenance. Maintaining a home and property can be physically challenging for some seniors or costly when hiring professionals. Older homes often require substantial investments with new roofs, siding and HVAC systems. As a tenant when a serious property issue develops, you call the landlord or property manager.
- Less space. Most retirees own homes that are larger than they need. Their children are out of the house, they don’t entertain as much and climbing stairs requires more effort. Selling and buying a smaller single-level home may be desirable but often not economically feasible. The average listed price of a single-level home in the county is $695,000, and if located within a senior community, the HOA dues can be more than $450 per month.
Renting may be less expensive than buying another home. Forbes recently published a study by John Burns Research and Consulting that showed in many markets, renting a single-family home is less expensive than owning one. Their conclusions: “High home prices and rapidly rising mortgage rates have priced many prospective homebuyers out of the market. Now, owning a home costs $839 more per month than renting.” The study considered the total cost of ownership including property taxes, insurance, maintenance and financing.
- House rich and cash poor. Often retirees discover their fixed retirement income doesn’t support their lifestyle or allow them to pursue their “bucket list” priorities. Their home, however, is worth a small fortune. Cashing in on that equity will pay rent for many years and allow retirees to pursue other interests not previously available to them.
- Less commitment. Selling and then buying another home for retirees is a huge financial long-term commitment. While homes generally appreciate over the long-term, as we have recently witnessed, property values may also decline. A homeowner who later discovers they made a mistake in selecting the home or the neighborhood is stuck until the home is sold, hopefully above what they paid for it and covering the transactional expenses. A lease usually runs for a year.
- Fewer estate issues. Owning a home is generally the best long-term investment for most Americans but it may complicate estate planning. What happens when one heir wants to sell and the other wants to keep the home? If dad passes, who will help mom with the expenses and upkeep of the home? Estate sale homes sell for less money than sales by homeowners. It’s easier to determine the value of cash in the bank and distribute it among the heirs.
- Priorities change with retirement. The focus may turn from wealth accumulation to wealth preservation. Many retirees look forward to a less stressful lifestyle. Perhaps it’s the ability to travel, the financial ability to assist children and grandchildren and simplify the legacy they leave behind. Often selling a home and renting another will facilitate those goals.
Admittedly, there are some advantages to renting for retirees. However, it’s long-term homeownership that has created their wealth and wealth has created that option. Most retirees will stay in their homes as long as possible. If they decide to sell and rent, it’s a lifestyle decision not an economic necessity.
Copyright © 2023, Mountain Democrat. Ken Calhoon is a real estate broker in El Dorado County.
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