A deal on a retirement home
Some desirable retirement locales have seen price drops of up to 50%. But is buying now the right move?
Why Louisville, CO is No. 1| 30 yr fixed mtg | 5.20% |
| 15 yr fixed mtg | 4.65% |
| 30 yr fixed jumbo mtg | 5.97% |
| 5/1 ARM | 4.28% |
| 5/1 jumbo ARM | 4.68% |
(Money Magazine) -- Shortly after Karlene Anderson retired in 2007, she and husband John decided they should relocate from Danbury, Conn., to be near their son and grandchildren in Atlanta. Given that they had never lived in the area, the Andersons figured they'd rent for quite a while. But as home prices tumbled, the couple decided to pull the trigger on a purchase.
In January they bought a three-bedroom home in Woodstock, Ga., 30 miles north of Atlanta, which was listed for $321,000, about 20% less than what comparable homes had sold for a year earlier.
Negotiations reaped additional savings. "We asked for extra crown moldings and a deep sink for the garage, and the builder threw them right in," says John.
With home prices down 10% to 20% from the peak in most areas of the country and 30% to 40% or more in locations such as Arizona and Florida, you may find yourself, like the Andersons, tempted to buy your retirement home right away.
But with a turnaround for the national housing market many months off, the decision is hardly a no-brainer. If prices keep falling, you may feel you overpaid a few years down the road. Plus, if you can't rent out your new home or sell your current one, you could wind up knee-deep in housing expenses. Here's what to do before you start bargain hunting.
On average, U.S. home prices are projected to fall through the end of 2010. But that may not hold true for the market where you want to buy your retirement home. Some places that were hit hard early in the bust, like parts of California, are likely to recover sooner, according to forecasters Moody's Economy.com.
To get a sense of how close prices are to a bottom in the place you want to live, look at the number of houses listed for sale and the amount of foreclosures, says Bernard Markstein, senior economist with the National Association of Home Builders. If inventories and foreclosures are on the decline, that's a sign that recovery may be around the corner, and it's a good time to buy.
You can check inventory trends at housingtracker.net. For up-to-date foreclosure data, look at RealtyTrac.com's Trend Center, which offers maps comparing foreclosure rates in nearly every U.S. county.
If you're retiring soon and plan to move right away, you need to consider the state of the housing market in your current location as well as the new one. If you're selling a home in an area that's held up fairly well, you'll get a sweet deal by buying in a beaten-down market like Miami or Las Vegas, of course.
If the place you live now has been hammered in the bust, however, the hit you'll take selling your house may be far larger than the discount you'll get on a smaller retirement home. But by moving to a less expensive house, you'll probably reduce the amount you spend on maintenance, insurance, and taxes, says Diahann Lassus, a financial planner with offices in New Jersey and Florida.
If you plan to stay in your home for a few more years, you may be tempted to nab a deal on a future retirement home now and rent it out part- or full-time until you're ready to make a permanent move.
But before you buy a second home, keep in mind that the rental market in many areas has slumped along with home sales, says Lassus, and that the cost of carrying two homes at once can quickly turn a bargain into a burden.
To find out whether rental homes in the area you'd like to buy are sitting empty, look up recent vacancy rates at Census.gov (under People and Households, click on Housing, then Homeownership). To figure out what kind of rental income you can realistically expect to get, talk to local agents and look up rents for homes similar to the one you want to buy on Move.com.
If nothing else, doing some extra research should help you confirm that you're truly ready to commit to the location, especially if retirement is a couple years off. After all, notes Markstein, "a lot can change in just a few years." 
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