It’s no secret that the housing market has gone crazy. Prices are high, and inventory is low. If you’re retiring, and you aren’t planning on moving any time soon, you may be thinking that the market demand doesn’t affect you. But is that an accurate assumption? 

The last time we had a housing bubble like the one that we’re currently experiencing was right before the Great Recession. The housing market peaked in 2005-2006. Many believed that real estate would never go down. But it did. Prices have dramatically increased over the past three years. Interest rates on 30-year mortgages have almost doubled, and there’s a good chance they’ll continue to climb.

America’s Wealth Management Show recently reported that we should anticipate the interest rate on a 30-year mortgage to be 6.5-7% by the end of the year.   Based on that information, the housing market should slow. And demand should decrease because people won’t be able to afford a house anymore. 

Some economists are warning of the possibility of a recession in 2023. Even though there’s a lot of volatility in the market, we aren’t technically in a recession yet. Even with the increase in mortgage rates, there is still a high demand for homes. The current demand will keep prices up for a while. But I don’t believe it can sustain those higher prices indefinitely. If you remember the financial crisis, it wasn’t only the housing market that imploded because the housing market impacted several other industries. The entire economy can be impacted by mortgage rates.Furthermore, should we go into recession, housing prices will drop, and stock prices will drop even further.

You don’t want to sit back and expect the housing market to continue to do what it’s doing, especially with rates rising as quickly as they are. The Federal Reserve said it will continue to raise rates until inflation levels out. So, you must ask yourself, how will that affect my house’s value? What could that do to my investments? How could it affect the stock market or bond market? Most importantly, how could it impact my ability to do everything Iwant to do in retirement?

Is your house an investment, or is it an expense? It’s both. While most people don’t consider their homes to be an expense, they spend money on them regularly. But once they own it free and clear, it turns into an asset that can factor into their financial plan in many different ways. For example, if they decide to downsize heading into retirement, sell  their current home, and purchase a less-expensive home. Now, will that house give you income in retirement? No. But real estate should be factored into a retirement plan.

I have friends that have kids who all went to the same college. So, my friends decided to buy a house in the town where their kids attended college. It had multiple bedrooms so the kids could find roommates that they could charge rent over the years. The house is paid off today, and my friends plan on retiring this year. They have decided to continue renting the home to college students for the next 5-6 years and then they intend to sell the house. Those funds will go into assets that will help generate income in their retirement. I’ve also known of people who use their own homes free and clear to be sold and the funds are used to help pay long-term-care costs. Homes should be considered part of your retirement plan.

If the housing bubble bursts, will it negatively affect your retirement plan? Is your house considered part of your current retirement plan? If you don’t know the answers to those questions, I encourage you to request your complimentary consultation with one of my Osiwala Financial Group Advisors. And I want to stress that if you are under the impression that this process is lengthy, it isn’t. If you think you will have to take a half day off work to sit in our office, that isn’t the case either. These consultations  can be held by phone or virtually. Together, we’ll look at what you’ve currently got going on with your retirement plan to make sure that regardless of what happens in the housing, stock, or bond markets, you can still do all the things you want to do in retirement. Likewise, there are several ways to protect yourself in times like this. It’s crucial, especially if you’re getting close to retirement. To schedule your no-obligation, complimentary appointment, click HERE.