I've heard so many of these stories, of folks who stopped contributing to their 401ks, or went out and splurged on everything to trips to Tahiti or Hummer H2s, because of the wealth effect of housing.
Why save anymore, when because of your house, you're loaded? Why not buy that Hummer H2 - your house just went up another $100,000!
Well, because just like the dot-com paper gains, they can go away really, really quickly. As the folks in Phoenix (among other cities) are just now finding out.
Here's an article about people basing their retirements on their home. Oh, man, do I have some bad news. So sad. Not only will many not be able to retire "on the house" - they'll even have a tough time staying in the house...
Finance: Your house as a nest egg
Do you think your house is your retirement nest egg? Think again, say some financial advisers.
Many, if not most, homeowners do expect to retire "on the house" according to the Center for Retirement Research at Boston College.
But at the same time they are reducing their own equity by borrowing against their homes for other expenses. They may be counting on inflated home values that could fall by the time they are ready to sell and move. They may be counting on a resource they never really want to sell.
In other words, they may not be being very realistic.
"We all say people will sell their house and that's how they are going to live," says Bev Moore of MainStay Investments, a division of New York Life Investment Management. "But the bubble might be in the process of bursting."
April 28, 2006
Posted by blogger at 4/28/2006