The following is a summary of our recent interview with Kathy Fettke on our Lifetime Income podcast, which can be accessed on our site here or on iTunes here.
Real estate has been one of the best investments over the last 6 or 7 years, but with the Fed intent on raising interest rates and some questioning how much longer this bull market can continue, many are wondering if it’s time to sell.
Financial Sense recently spoke with Kathy Fettke, CEO and founder of the Real Wealth Network, about where the real estate market stands, and whether it’s time to buy, sell, or stay put.
Many Areas Close to Peaking
The reality is, there isn’t a single real estate market, but many regional markets that are in different parts of their cycles, Fettke stated.
In markets such as San Francisco, New York City, or Los Angeles, we’re beyond the last bubble peak in terms of pricing, she noted.
“We’re already seeing a softening in San Francisco,” Fettke said.
It’s important for those considering selling or wondering if they’ll have enough money to retire comfortably to look at the equity in their home and not assume that it will be there forever.
Everything goes through cycles, and we are likely at the peak right now in many real estate markets. As a student of market cycles, Fettke said she would hate to see someone waiting until the next recession and then trying to sell.
“If you wanted to get top dollar, now would be a fantastic time to sell,” she said.
Exodus Out of Overpriced Markets
Already, we’re seeing new inventory coming online, and many people, including retirees, are moving to Texas and Florida where there is no state income tax, housing is affordable and the climate is warm.
“For some people, it makes a huge amount of sense to sell while you can, while prices are high, even if you are not planning on retiring today,” Fettke said.
Over trillion is invested in retirement funds wrapped up in the stock market, she pointed out. The two biggest threats she sees to retirees’ wealth is that many have their money in this overpriced stock market, but also overpriced real estate in some areas.
With threats to the downside, retirees need to consider the possibility of losing their base capital or equity. Another thing to consider is that the Fed is likely to continue raising interest rates.
While this isn’t likely to affect the residential markets outside of overpriced areas, there is one sector of real estate where Fed rate hikes will have a big impact, Fettke stated: commercial loans.
“We will see a tsunami of foreclosures in the commercial world as rates go up,” she said. “If the Fed is raising rates just because it’s trying to slow down a booming economy … we’re going to see a slowdown. That’s what it’s intended to do.”
High-priced residential markets are going to adjust, and the Fed may be bursting a bubble that probably needs to be burst, Fettke noted.
“You just don’t want to be inside that bubble,” she added.
Options for Owners
It’s important to weigh your costs, Fettke stated.
“Sometimes you just have to make choices,” she said. “If for you the choice is (that you’re) going to be happier living near family and friends, you’ve got to make a decision that’s going to work for you financially.”
For those close to retirement who have equity in a home, they have several options. Obviously, owners can sell that property and downsize, but they can also rent out rooms or even opt for a reverse mortgage.
“I’m not a huge fan of using debt to live on,” Fettke said. “But if you never plan on leaving, maybe that’s the right choice for you.”
She does recommend considering the rental option. With services such as Airbnb, seniors may be able to find renters without as much hassle as in the past.
The question needs to be, do retirees have enough money to live on comfortably, but also, are they maximizing their returns?
“A lot of people are sitting on a million dollars of equity,” she said. “If you invested million, you’d have around ,000 a month income. It’s a huge loss just having it sit there in home equity. I think that’s the piece people don’t understand.”
The reality is, other markets outside of high-priced areas are attractive both from a financial perspective but also in terms of livability.
With the number of retiring Baby Boomers increasing, we are going to see a shift in living patterns, Fettke noted.
“The next 10 years are going to be very different than the last 10 years,” she said. “My advice is to be very defensive today. Don’t believe what you’re hearing in the media. Use your common sense and question everything. … There are things you can do to make yourself fabulously wealthy if you pay attention.”
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