How to take advantage of house price spike
As median house prices continue to climb across most capital cities, asset-rich, cash-poor seniors are missing an opportunity for improved living standards by building on existing home equity.
That’s the contention of retirement finance expert and author Rachel Lane, who suggests that by selling while house prices are high and moving into more affordable accommodation, certain seniors could boost their cash reserves by tens to hundreds of thousands of dollars.
“While housing affordability is generally considered a young person’s issue restricting entry to the market, it is also a major problem for those that do own a home but rely on a low weekly income,” Ms Lane says, “The Australian Government Productivity Commission’s recent report Housing Decisions of Older Australians found more than 90 per cent of homeowner Age Pension recipients currently under the ASFA threshold for modest retirement standards could reach that benchmark over the rest of their lives by using their home equity.”
“The report also suggested households aged 65 to 74 years had on average $480,000 in home equity, which compared to the cost of a more affordable home in the vicinity of $200,000-$300,000 represents a significant gap of potential cash reserve.”
So by taking advantage of their existing home equity while house prices remain high, seniors could boost their cash reserves considerably. With this excess capital they could do a range of things like diversify in other property, shares or annuities.
Ms Lane is also quick to dispel concerns that seniors seeking more affordable housing options may find their choices severely limited in a market where prices are currently high.
”Senior homeowners looking to downsize needn’t be competing in the private market against homeowners and investors, which is a common fear, as there are a variety of traditional and new home options to suit,” Ms Lane says. “Lifestyle-focused manufactured home estates for example are one of the newest catering to this specific market. “
“While the homes on offer are of an increasingly high quality, the entry price point is kept low since residents lease, rather than own the land, with weekly fees in the $120-$160 range. This pricing model eliminates the need to pay stamp duty, entry and exit fees and in some cases, the resident is then eligible for rent assistance… I would urge seniors to pay close attention to median house prices in their area and affordable housing price points like these to get a better sense of the type of cash reserves they might be able to access.”
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