Is It Time for Baby Boomers to Downsize?

By Tom Sightings 

For many reasons, a lot of baby boomers have been delaying retirement. One reason is that we have been unable to sell our homes. We've been trapped in our old houses, in our old, high-tax communities, handcuffed to our jobs by a lofty cost of living. We couldn't afford to retire until we could move to cheaper digs.

But now the real estate market is improving. According to the Standard & Poor's/Case-Shiller home-price index, the number of existing homes sold is up more than 8 percent from a year ago, and average prices have climbed 12 percent since this time last year. In some markets, such as Dallas and Denver, prices have regained all of what they lost during the Great Recession. Even in Detroit, prices are up by a third from the bottom (although still well below their peak in 2005).

Now the question is: If you can finally sell your home and move to the retirement destination of your dreams -- whether across town or across country -- should you rent your new place, or should you buy again?

Let's remember that despite the lousy real estate market of the recent past, most boomers have made a lot of money owning their own homes over the past 30 years. For most of our lives -- and our parents' lives before us -- owning a home was the American dream. A house centered you in a stable community, provided a school for your kids, and in the long run, was a good financial decision as well. The mortgage and taxes were subsidized by the tax code, and the value of your house increased -- some years more than others, but except for a few brief recessionary periods, always on an upward trajectory.

The rule of thumb was that it was better to own than to rent, as long as you planned to stay in your house for at least five years. But that was then. What about now?

What we've all learned since 2006 is that owning a home can be an albatross as well as an opportunity. Many people now seem more interested in mobility than stability. You can't retire and you can't take that new job if you can't sell your house. And maybe you just no longer want the responsibility of taking care of a lawn and doing maintenance on the roof and the plumbing and the heating system.

Many of us know -- and are a little jealous of -- a friend or relative who was renting an apartment or a condo and was able to take a new job or jump on an early retirement package, then wave goodbye and start the new life they wanted. Now that we homeowners have the chance to move, do we really want to be saddled with another place we may not be able to sell? Especially in a volatile market like Florida or Nevada or Arizona?

Certainly, if you're experimenting with your retirement, shopping for a new place to live, you should not buy a place right away. Remember, buying and selling a house costs a lot of money -- not just the down payment, but the mortgage, the lawyer, the insurance and taxes.

If you're not sure, rent for a year or two. But eventually, you'll probably begin to feel like you're "throwing away" all that rent money, contributing to the wealth of your landlord rather than building your own equity. The people in your complex are transient, and while you might not have to worry about maintenance, you might find your landlord often does a "quick fix" instead of doing the job right. Plus, maybe you want to put your own stamp on a place -- fix up the kitchen the way you want it, rather than the way the landlord has it.

Also, be careful: You might find that you need to buy a place quick, before prices run up again and leave you behind, unable to afford what you'd like.

Above all, the choice of whether to rent or buy is a lifestyle decision: What kind of home and neighborhood you want to live in, whether you want to feel like a part of the community and how long you are you going to stay there. In other words, the new rule of thumb is the same as the old rule of thumb. Rent if you're going to be moving on. Buy if you want to settle down and stick around for at least five years.