Baby Boomers are slowly downsizing, but a new crisis is arising in the housing industry since few Millennials want their homes, particularly big and outdated ones. According to a recent report, the housing demand from younger generations is inadequate to fill the void left by the crowd of departing older owners. Overall, seniors are projected to exit more than 21 million homes over the next two decades. As they exit their huge homes and downsize, there is going to be massive investment implications across the country. So, what can you do to cope with the challenges of baby boomer downsizing?
Aging in Place vs. Downsizing
Many baby boomers wish to retire by the age of 60 and settle closer to their children or grandchildren, but finding affordable houses to downsize to is a huge challenge. As a result, there is always a tug of war between staying put or downsizing. So, which is the better option?
According to a 2018 Survey of Home and Community Preferences, AARP revealed that 76 percent of Americans aged 50 and above prefer to remain in their current homes, and 77 percent would wish to live in their current neighborhood for as long as possible. On the contrary, just 59 percent of older Americans envision the possibility of staying in their community, either in a smaller home within the area (13 percent) or in their current home (46 percent).
Baby boomer downsizing is faced with several challenges as many boomers enter their golden years with substantial mortgage debt. Much of the mortgage borrowing is carried by households with no pension and below-median incomes and assets. This is perhaps the reason why many baby boomers opt to remain in their current homes. Other factors, such as living in familiar territories, retaining home equity, or a lack of affordable housing options, may also drive the decision to stay put.
Aging in place, on the other hand, can be harder to achieve if the home isn’t equipped to meet the future needs of the boomers. There is a close linkage between housing and health care, and making your house accessible for in-home health care is of paramount importance. However, this can be a big challenge in lower-density areas with limited transportation and accessibility to medical practitioners.
As a baby boomer stuck in this dilemma, there are multiple options you could explore to cope. They include:
1- Tapping Equity to Stay Put
Mobility and health issues are the biggest retardants for seniors looking to stay in their current homes. You may need amenities such as bathroom grip bars, wheelchair ramps, walk-in showers, and wider doorways and hallways. However, such home improvements can be costly. Fortunately, if you own your home outright or have adequate equity, you can borrow some cash against your home’s equity to help pay for the modifications. Some of the best options to consider include home equity loans, home equity lines of credit (HELOC), VA financing, and reverse mortgage.
2- Tapping Equity to Stay in your Community
The increasing shortage of affordable housing coupled with skyrocketing mortgage rates creates a significant barrier to baby boomer downsizing. However, higher rates create a huge mobility barrier to all cadres of the society, including the millennials. If you have significant equity in your current home, you have an upper hand in competing for smaller, less expensive houses, thanks to the inflated appreciation.
Instead of trying to relocate to more expensive neighborhoods to be closer to family, you can look for a smaller home within your community and tap into your current home’s equity to raise funding.
3- Thinking Outside the Conventional Housing Box
In many communities, the limited housing options complicates everything for baby boomer downsizing. Surprisingly, some older folks are devising more creative solutions that buck tradition. According to an AARP survey, adults aged 50 and above are today open to new housing alternatives. To be precise, 32 percent prefer home sharing, 31 percent are open to building an accessory dwelling unit, while 56 percent prefer living in villages that provide services that support aging.
Whether your aim is to gain companionship or attain economic viability, you can think outside the box and opt for unconventional housing solutions. The “Golden Girls” system of roommates is one example of shared-housing arrangements that are gaining steam. As the affordable housing crisis continues to brew, unconventional solutions are increasingly becoming less taboo and more accepted.
Another alternative is to build an accessory dwelling unit that suits your senior needs. An accessory dwelling unit is simply a smaller, secondary building that attaches to your primary home or situated on the same lot. Think of it as a mother-in-law suite or granny flat that offers a livable solution for seniors. It’s a great option if you wish to age in place while generating extra rental income from your main house. However, check with your local zoning or building authorities if it’s possible to get approval for an accessory dwelling unit in your region.
Whether your plan is to downsize or stay put, housing expenses will undoubtedly play a critical role in your overall retirement plan. It’s important to craft a financial plan for retirement. Talk with a financial advisor or a mortgage lender to figure out what options will help you live comfortably without jeopardizing your retirement income. Other than affordability and having a comfortable place to call home, baby boomer downsizing should be informed by accessibility to family, doctors, hospitals, transportation, and social amenities.