We often discuss the difference in family wealth between homeowner households and renter households. Much of that difference is the result of the equity buildup that homeowners experience over the time that they own their home. In a report recently released by the nonpartisan Employee Benefit Research Institute (EBRI), they reveal how valuable equity can be in retirement planning.
“Individual account retirement plan assets, plus home equity, represent almost all of what families have to use for retirement expenses outside of Social Security and traditional pensions. Those families without individual account assets typically have very low overall assets, so they have almost nothing to draw from for retirement expenses.”
The report echoed the findings of a working paper, Home Equity Patterns among Older American Households, authored by Barbara Butrica and Stipica Mudrazija of Urban Institute.Fannie Mae highlighted these findings for their blog The Home Story this past winter, quoting Butrica and Mudrazija:
“For most adults near traditional retirement age, a home is their most valuable asset — dwarfing retirement accounts, other financial assets, and other nonfinancial assets. Although relatively few retirees tap into their home equity, having it provides financial security… In fact, many retirement security experts argue that the conventional three-legged stool of retirement resources — Social Security, pensions, and savings — is incomplete because it ignores the home.”
USAToday interviewed two area experts to comment on the EBRI report. Randy Bruns, a private wealth adviser with HighPoint Planning Partners, agreed with the findings:
“Social Security and home equity are major pieces of the retirement puzzle.”
Wade Pfau, Professor of Retirement Income at The American College of Financial Services and author of “Reverse Mortgages: How to use Reverse Mortgages to Secure Your Retirement,” said having the equity without a plan to use it won’t help:
“Home equity is a very important asset for American retirees, and so it is important to think about how to make best use of home equity in retirement planning.”
Whether you use the equity in your home through a reverse mortgage or by selling and downsizing to a less expensive home, it should be a crucial piece of your retirement planning.
Many real estate economists have called on new home builders to ramp up production to help relieve the shortage of inventory of homes for sale throughout the United States. The added inventory would no doubt aid buyers in their search to secure their dream home, while also helping to ease price increases throughout the country.
Unfortunately for builders, there are many forces that are making it difficult for them to do just that!
Last week at the National Association of Real Estate Editors 51st Annual Conference, CoreLogic’s Chief Economist Frank Nothaft broke down the 4 ‘L’s of New Home Construction: Lots, Labor, Lumber, and Lending.
The concept of supply and demand is ripe in the new home construction industry. The four ‘L’s of new home construction are each suffering a supply problem, and with that comes added costs. Let’s break it down!
Lots – There is a shortage of land near metros at an affordable price, causing builders to move farther and farther away from cities to keep costs down. This isn’t always an attractive option for those who want to stay close to work.
Labor – The Great Recession forced many skilled construction and trade workers to find other sources of income once their jobs were lost at the time of the crash. Even though the overall housing market has recovered, these workers have not returned. Those who remain are starting to age out and retire, causing even more of a shortage and additional costs.
Lumber – The cost to build a new home is directly tied to the cost of the lot and the cost of the supplies needed to build the home. Lumber costs continue to escalate due to policies restricting the importation of Canadian lumber, making larger luxury homes an attractive option to recoup costs when selling, rather than building smaller single-family homes and making less profit.
Below is a graph showing the increase in cost of 1,000 board feet of framing lumber.
Year-over-year, lumber costs are up 13% after reaching a high of $433 in the second week of April.
Lending – During the Great Recession, many small community banks were forced to close their doors. These banks were a great source of capital and lending for builders looking to borrow money at a low interest rate in the community in which they were building. Tougher lending standards have made borrowing funds more expensive and more difficult for builders.
Additional costs across all 4 ‘L’s have made building luxury properties more attractive to builders as they are able to make a larger margin with the higher sales price. The move to scale down to starter and trade up homes to help with supply will mean any additional costs are absorbed by the builders unless the supply of the 4 ‘L’s can increase!