Retirement savings: Has Covid-19 burst the property bubble? The Wall Street Journal

Like many South Africans, I have watched my investments that were tied up in retirement savings vehicles offered by Sanlam, Old Mutual and other large institutions shrink instead of grow. The dismal returns have been linked as much to excessive costs in a financial sector that has become a feeding pit for intermediaries as they have to the choice of underlying, mostly South African, assets. And, tinkering with shares has never been productive, so I've pinned my hopes on property delivering an income for me when I retire. But the Covid-19 fiasco has underscored that property, when it is illiquid, is utterly useless and can be a significant financial drain if it's buy-to-let and the tenants can't pay. Right now, for example, it's difficult to buy and sell property for practical reasons amid a shutdown that has left most businesses standing still. And, then, with recession still building, there are warnings from SA property economists that prices could easily plummet at least 25% amid excess housing stock – including short-term holiday rentals that will be returned to the market now that no-one is travelling far. The property pain has been felt across the world. The Wall Street Journal's personal finance experts point out that the woes in the property market could easily last into the next decade in the US – a reminder that property fans should be working out how to diversify into other assets for the long term. – Jackie Cameron ___STEADY_PAYWALL___.Planning to use your home as a retirement nest egg? Not so fast..By Glenn RuffenachLike many people, my nest egg has taken a beating of late. My home, though, is paid off, and I like to think of this as my safety net in retirement. Is this a reasonable expectation? What are your thoughts?(The Wall Street Journal) – This idea sounds comforting, but the Covid-19 pandemic highlights how the home-as-piggy-bank strategy can come up short.Most people who hope to tap the value in their real estate have two options: trade down to a smaller, less-expensive home, or borrow against their equity. The first option could well result in lower annual expenses and a nice addition to your nest egg (again, assuming you walk away with a profit).But timing is critical. A homeowner who might have been considering trading down this year or next suddenly has the coronavirus to contend with. Economic uncertainty, a sharp spike in unemployment, fears about simply walking out one's front door—all are leaving many potential home buyers on the sidelines. Both Fannie Mae, the mortgage-finance giant, and Realtor.com (which is operated by News Corp., parent of The Wall Street Journal) are forecasting that home sales nationwide will fall about 15% in 2020.Even in the long term, buyers might not be as plentiful as retirees hope. A study published last November by Seattle-based real-estate company Zillow estimates that about 21 million homes could hit the market through the mid-2030s as older Americans, including many baby boomers, pass away or search for new housing (such as assisted-living communities). Gen-Xers and millennials, though, might not be able or willing to absorb that many homes that quickly.As for the second option, borrowing against your home could be tricky. A full-blown recession, whether as a result of the current downturn or one that occurs later, could push home values down, meaning you may not be able to pull as much money from your property as you wish. (Indeed, a survey published earlier this month by the Federal Reserve Bank of New York found that 44% of households expect home prices to decline in the coming 12 months.) A reverse mortgage is a possibility, but fees tend to be high, and the amount you can borrow depends on your age, prevailing interest rates and your home's value.In short, your home isn't a foolproof way to beef up your nest egg. If you must trade down, try to do so sooner rather than later. Given that many retirements today will last 20 years or more, it's never too early to reduce expenses and shore up savings.About 25% of owner-occupied homes in the US are likely to go up for sale over the next two decades. . Mr. Ruffenach is a former reporter and editor for The Wall Street Journal. His column looks at financial issues for those thinking about, planning and living their retirement. Send questions and comments to askencore@wsj.com.

Retirement savings: Has Covid-19 burst the property bubble? The Wall Street Journal

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