When prospects for rising household incomes are dim, as they are today, it's time to redouble your efforts to cut expenses wherever possible. That's especially true of housing, which remains the biggest expense for many retirees. Weak housing values and economic uncertainties have put a big damper on housing activity. But with interest rates at record lows, it may make sense to seek a lower-cost housing solution.
Refinance your existing mortgage. Mortgage rates were already near record lows when the Federal Reserve Board acted last week to further reduce long-term interest rates in general, and included a targeted effort to push down mortgage rates even more. Many Americans are unable to refinance their homes regardless of how attractive interest rates may be. They either owe more on their homes than they're currently worth, don't have enough income to qualify for refinancing, or both. But if you can qualify for a lower mortgage rate, consider refinancing.
Sell your home and rent instead. While home prices are still in the dumps in many U.S. markets, low interest rates help buyers qualify for larger mortgages. Revisit the economics of selling your home and renting a new home instead of buying another one.
Moody's Analytics issues "buy-to-rent" ratios each quarter on homes in more than 50 major U.S. urban areas. It compares the median price of a single-family home with the annual rental cost of a typical apartment. The higher the ratio, the more it makes sense to consider renting as an option to homeownership. A ratio of 15 is a rough "balancing" point where the affordability of home ownership and renting are similar.
Here are buy-to-rent ratios as of the second quarter of the year:
Cleveland, Ohio, 10.79; Pittsburgh, 11.22; Phoenix, 11.45; Detroit, 11.6; Atlanta, 11.79; Minneapolis, 11.8; Orlando, 12.33; Tampa, 12.61; St. Louis, 12.88; Las Vegas, 12.98; Miami, 13.04; Fort Lauderdale, Fla., 13.34; Cincinnati, 13.35; Kansas City, Kan., 13.72, and Chicago, 13.95.
Jacksonville, Fla., 14.46; Indianapolis, 14.54; Sacramento, 14.58; New York, 14.69; Philadelphia, 14.81; Columbus, Ohio, 14.92; Palm Beach County, Fla., 15.11; New Orleans, 15.46; Houston, 15.65; Baltimore, 15.7; Dallas-Fort Worth, 15.88; Salt Lake City, 16.16; Oklahoma City, 16.38; Los Angeles, 16.39; Boston, 16.57; Memphis, 16.97; San Antonio, 16.97; Norfolk, Va., 17.5; Bridgeport, Conn., 17.62; Washington D.C.-Northern Virginia-Maryland, 17.89, and Hartford, Conn., 18.08.
Long Island, N.Y., 19.85; Austin, Texas, 19.89; Milwaukee, 20.18; Denver, 20.84; San Diego, 21.08; Richmond, Va., 21.38; North-Central New Jersey, 21.76; Portland, Ore., 22.99; Nashville, 23.31; Seattle, 24.05; Raleigh, 24.27; Manhattan, N.Y., 27.72; Charlotte, N.C., 27.99; Orange County, Calif., 28.28; San Jose, Calif., 28.68; San Francisco, 29.92; Honolulu, 31.79, and, East Bay, Calif., 34.33.
Relocate to a cheaper housing market. The recession and housing bust have curtailed Americans' fondness for relocating to pursue new career and retirement opportunities. According to William Frey, a demographer at the Brookings Institution, migration rates have fallen to their lowest levels in more than 60 years. The biggest impact has been on the young, who have not been finding attractive job options in other markets, and also may not be able to afford to live on their own. Still, for retirees, now may be a great time to seek greener and cheaper pastures. AARP recently published an exhaustive 2011 update of its State Housing Profiles, including detailed reports on housing conditions and affordability in each state.
Consider a reverse mortgage. Seniors facing growing problems paying for their homes are not likely to get relief anytime soon. If you own your home, have no mortgage or, at most, a small one, and are at least 62 years old, you should study the feasibility of a government-insured reverse mortgage. Called a Home Equity Conversion Mortgage (HECM), these loans allow eligible seniors to access the equity in their homes and continue living in them as long as they wish without needing to make future mortgage payments. They do need to pay home insurance, property taxes, and maintenance expenses.
HECM loan charges will mount and do need to be repaid if the occupants or their heirs decide they wish to retain the home. But because HECMs are "non-recourse" loans, owners can surrender their homes and walk away without repaying accumulated loan charges. The percentage of home equity that an owner can access through a HECM depends on their age, whether they have an existing mortgage that must be repaid, and the type of HECM loan they choose. HECMs are complicated and the government requires consumer counseling for applicants.