Boomers and their Home Values

This neighbor—the camel—is helping to produce wildly inaccurate home values, at least for the dome I live in and according to one online real estate site. I don't think any of us can avoid thinking at our home values as we read of the housing bust. Most boomers count home equity as a major part of net worth and a crucial element of the retirement nest egg. To that end, I checked out our home's estimated value on four web sites. (I'll track the numbers for a while and report back.)

One of the web sites produced a value of about a million bucks. Wow. But it's not accurate and probably reflects the deadly average of values (and that's the main reason home values are reported with median prices, not averages). The camel lives on a nearby ranch that may be raising the neighborhood numbers, but there's also the Bradshaw place that sold a few years ago. Terry Bradshaw moved his horses to Oklahoma, selling his North Texas home and barns for more than the typical suburban sale. Throw in a couple of golf communities, and you can appreciate the problem of tracking home values in my area.

Most of the sites that I checked were more realistic, noting the important differences among neighborhoods. With the housing market still plummeting, it's important not to assume that a web site can predict prices.

A more reliable online tool (at least for buyers) is the New York Times calculator by which users can find the break-even point between renting and buying. Find the resource at the calculator page titled "Is It Better to Buy or Rent?"

Take your time to explore all parts of the calculator. Enter several different values, but also play with the sliders on the left-hand side of the page. That's where you get a sense of "what happens if..." home prices do not appreciate—a likelihood for the months ahead.

© 2008 Mary Bold, PhD, CFLE. The content of this blog or related web sites created by Mary Bold (www.marybold.com, www.boldproductions.com, College Intern Blog) is not under any circumstances to be regarded as professional, legal, financial, or medical advice. Or education advice. Or marital advice. Or even a tip.

Understanding and Ignoring Home Equity

News of Fannie and Freddie. Weekend news is always the most interesting...if you hope to confine the damage of any announcement, you use the weekend schedule of Americans and their news outlets to good advantage. And that's what is happening with the news of government intervention to shore up both Fannie Mae and Freddie Mac.

The mortgage industry will be a bit more stable as the intervention proceeds but the overall result is much the same: housing in America is still in trouble.

For boomers actively buying or selling, the daily swing of events will be important. For boomers not in the housing market, well, we may just want to keep our heads in the sand as long as possible. That's because we are probably much happier not knowing the FMV (fair market value) of our homes today.

As we approach retirement many of us take comfort and even pride in our "home equity." Aside from providing opportunity for loans and lines of credit, home equity just plain makes us feel good. I've always got my equity in my house. We can always sell the house and live on that. And, my personal favorite, it's almost paid for.

But home equity is based on market value minus outstanding mortgage. (If you go shopping for a home equity loan, you factor in 80% to find out what the immediate cash value is.) Most of us walk around on auto-pilot with two figures in our head: what we paid for the home and the outstanding mortgage. That's not quite the same thing as market value minus outstanding mortgage.

If we have the benefit of time (not planning to sell the family home for 5 or 10 more years), we may be able to hold onto our auto-pilot figures and not calculate accurately. Even a net worth statement can keep us on auto-pilot. Only an appraisal will drive home the possibility that our home equity is less a part of our retirement plan than we thought.

On a personal note: If you happen to have a slightly different style of house, market value would have to include the possibility of a long wait for a sale. While geodesic domes are fun to live in and enjoy low energy bills, they do fall into that different category. And when economic times are tight, folks are not so charmed by different. ~ Lida

© 2008 Mary Bold, PhD, CFLE. The content of this blog or related web sites created by Mary Bold (www.marybold.com, www.boldproductions.com, College Intern Blog) is not under any circumstances to be regarded as professional, legal, financial, or medical advice. Or education advice. Or marital advice. Or even a tip.