Housing in Retirement

America’s Housing Shortage May Be a Shot In The Arm for Homeowners’ Retirement Plans

America’s Housing Shortage May Be a Shot In The Arm for Homeowners’ Retirement Plans

Due to sweeping economic conditions, America’s demand for homes is far outpacing its supply. Homeowners are in a prime position to sell at historically high prices and boost their retirement picture as a result.

R. Tyler End, CFP®

Published April 26th, 2021

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If you’re an older homeowner, now is a good time to assess your housing needs going forward and potentially improve your retirement picture simultaneously. As the United States economy slowly levels itself following the COVID-19 pandemic, the American housing market continues to flounder in the wake of the virus. This stems from a myriad of factors. First, the National Association of Realtors (NAHA) estimates that the U.S. housing market needs nearly 4 million more homes to meet the nation’s current demand. That figure represents a 52% increase from the ongoing housing shortage since 2018.

On top of that shortage, American homeowners have been forced to spend more time at home over the last year than likely any other time in their lives. Being a “home body” and not having the ability to spend discretionary money as freely on entertainment or travel has led people to reinvest saved funds and government stimulus money back into their homes. In 2020, the average household spent $13,138 on home improvement services - a 44% increase from that figure ($9,081) in 2019.

This increase in spending has caused ripple effects in the housing market as building supply prices have skyrocketed due to increased consumer demand coupled with lower supplies from decreased manufacturing and production during the pandemic. For example, lumber prices have shot up dramatically over the last year. The National Association of Home Builders (NAHB) reported that lumber prices have increased over 180% over the last year and that translates to a cost increase on a new construction single-family home by $24,386 since April 2020.

What’s Tough for Buyers Benefits Sellers

The aforementioned shortage puts homeowners considering selling in a prime position. Sellers in a limited supply environment can routinely receive competing over asking price offers, cash-only offers, and waived contingencies or inspections.

Older homeowners whose children may be grown, are starting to actively think about retirement, or are already retired may benefit from downsizing their home and considering apartment or retirement community living. The IRS offers extremely favorable tax treatment on the proceeds of primary residence sales. Homeowners that have a capital gain from the sale of their primary residence, may qualify to exclude up to $250,000 of that gain from income, or up to $500,000 of that gain if their tax status is married filing jointly. Eligibility for this exclusion only applies for homeowners that have owned and used their home as their primary residence for a period that amounts to at least two years out of the five years prior to its sale date.

This Crazy Home Market Creates an Opportunity for another Retirement Asset

Home sellers in the current sellers’ market have a unique opportunity to capitalize on the value of their home and convert part of it to be another retirement asset. If you’ve been in your house for a long period of time, it’s likely that you’ve seen appreciation in value in your home and that offers the opportunity to “buy low and sell high” in this favorable market. Although you may view it differently, your home is often a crucial part of your overall net worth and selling it in a high market helps to improve your overall financial situation. Naturally, sellers do need to find another place to live and that requires capital but in a sellers’ market the sale can offer a premium that can be reinvested or used to produce retirement income.

Oftentimes, downsizing your home is thought of as a defensive measure due to a financial hardship or changes in health circumstances. But, in the current market it could be a strategic offensive play that may offer a profit on a living situation that may no longer best fit your needs. Utilizing those sale proceeds for retirement and continuing your other retirement planning strategies also could be a nice lift to your retirement picture.

To start this process, it’s best to begin to prepare your home for sale. Cleaning and minor repairs are necessities that oftentimes add dollars and cents to the sale price. Ask friends or relatives for a referral for a licensed real estate agent who is familiar with your area that can help you maximize the value of your home should you decide to list it for sale.

Final Thoughts

If you’re a homeowner and contemplating your future, connect with a Certified Financial Planner® at Retirable. A custom financial plan can look at what selling your home may do for you in the short-term but also for your full retirement picture.

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Still have questions about how to properly plan for retirement? Speak with a licensed fiduciary for free.


R. Tyler End, CFP®

CEO and co-founder of Retirable.

As a retirement income specialist at Northwestern Mutual, Tyler worked hands-on to help people define their goals, achieve financial independence, and enter retirement with peace of mind. Later, at Policygenius, Tyler expanded the company’s reach into new products, turning Policygenius into an industry-leading distributor of disability and P&C insurance. Tyler’s efforts helped more than 10,000 people find the insurance they needed.

Retirable combines Tyler’s passion for retirement planning with his experience growing scalable businesses, with the goal of giving every American personalized advice.

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