It's hard to beat a bike ride on the winding road that takes folks along the shores of the mighty "creek," as locals call the sprawling marsh leading to the Atlantic Ocean in Murrells Inlet, S.C., a seashore town that combines the quaintness of a once-thriving fishing village with upscale restaurants and homes. It's just one of the many communities that dot the 23 miles of Myrtle Beach, but its "arrogant shabbiness" and fresh marsh breezes have made it a favorite of retirees and home developers alike.

So it's no surprise that my friends, who have been renting in the area for years, really want to buy there when they retire and move from Connecticut at the end of the year. They hope to take the proceeds from their home sale-about $220,000-and buy a new three-bedroom, two-garage home on a golf course about a mile from the beach.

The question for advisors as the stock market continues its gyrations is simple: Should my friends do it? Or should they rent and wait until the market, which is marred by falling prices and glutted with new and existing inventory, gets closer to a bottom?

It's a question advisors and retirees should be taking a hard look at. When I traveled to Raymond James' headquarters in St. Petersburg, Fla., for their Women's Symposium last year, I was impressed with the spectacular array of condos being built along the bay. The problem? Eight months later, there are still about 70% vacant. "They'll never get their asking prices," a Raymond James executive and longtime St. Pete resident told me last October. Apparently, she was right.

In Myrtle Beach, sales have not only stalled, they are backsliding, right along with prices. Home sales are down some 27%, with condo sales down 38%, according to the South Carolina Association of Realtors, which reports that prices have fallen about 3.5% in the first quarter of 2008, after a 10% decline last year. Some homes have been sitting on the market more than 320 days, says Melanie Narla, a realtor with Coldwell Banker Chicora Realty in Myrtle Beach.

That's a new world order for those of us who were used to buying and selling real estate in a single afternoon.

Jim Spring, a realtor with Century 21, says the real estate situation in the sprawling beach community is a "stalemate." Buyers, reluctant to purchase during a downtrend, are holding fast, but sellers, refusing to "give their properties away," are staying firm, Spring says. "Sellers who were continuing to demand higher prices for their properties finally have had to reduce their prices below the 2005 market price or take their properties off the market."
What that means is sellers are prone to extremely large haircuts, especially in the condo market in Myrtle Beach. Case in point: Those who purchased a one-bedroom condo in Camelot by the Sea, a castle-themed, oceanfront development, in June 2005, would have paid $345,000. The same condos are now selling for $176,000. That's a $169,000 price reduction in three years time, and that's before the sellers pay their real estate agent the 6% to 7% sales commission that is the norm in Myrtle Beach. That would be painful for anyone, but especially for middle-class retirees who either need to sell or have to stay put because they can't afford to take the loss.

Making matters worse is inventory. There are 20% more homes on the market today in Myrtle Beach than there were at this time last year. And what is selling are new and pre-construction properties, not resales. With building planned for the next decade in Myrtle Beach, that brand new golf course home you buy this year may look dated and dingy to buyers just five years down the road.

So what does that mean for the real estate aspirations of our soon-to-retire Connecticut couple, who are hoping to continue to run their print brokerage business, albeit on a reduced and mostly virtual basis, from their new digs in Myrtle Beach? For any client, it depends on their assets, age, health and desire to say put, says Linda Leitz, founder and co-owner of Pinnacle Financial Concepts in Colorado Springs, Colo.

What we know about the Connecticut couple is this: They're currently age 60 and healthy and, all told, with the proceeds of their home sale, will have essentially $1 million. They hope to keep working, earning approximately $5,000 to $7,000 a month for at least five to seven years.
They truly like Myrtle Beach and have spent more than 15 years vacationing there. So as far as we can see, without a crystal ball, there are few surprises that could send them trekking back to Connecticut-not even Myrtle Beach's sauna-like Julys, the ever-increasing crowds or the two weeks of motorcycle fests when droves of Harley-Davidsons roar up and down the roads, clogging restaurants, bars and beaches every May. They've already experienced all that firsthand.

So, Linda, should they buy a $220,000 house in their dream beach town or rent it for $1,000 a month? Leitz's answer is, "Buy it." And here's why: "They're young and healthy enough and committed enough to the area, so it makes sense, especially if they take out a mortgage and invest the rest, instead of buying outright," Leitz says.

If they bought a home in South Carolina for $220,000 and put down 20%, their monthly mortgage payment on the balance, $176,000, over 30 years at 6% would be $1,055. They then would have $176,000 in cash to invest. Leitz says she would break out investments accordingly: with about $60,000, or five years of mortgage payments, going into CDs and Treasurys paying 3.5%, while the rest, $116,000, is invested in stock and bond mutual funds. Depending on what the markets do, that strategy could pay the mortgage for decades. The benefits of home ownership include tax deductions for their mortgage and state taxes, which would really add up over the years to offset ownership costs.   

Another benefit? Avoiding a rising rent environment that could strap them for cash or force them to move. "If everyone starts renting or you happen to rent in a particular trendy area where people start to flock, your rent payments could increase significantly," Leitz says.

"I don't think buying is right for everyone," says Leitz. "An older client or someone in poor health who may want the flexibility of moving closer to family, or into a care facility if their health takes a turn for the worse, may truly benefit from renting."
Renting might also be appropriate for folks who have some real estate savvy and wanted to bargain hunt before buying a home-they would have some time to track the price movements of properties that interest them. But Leitz says she's uncomfortable timing the real estate market.

Still, clients who have less than a five-year time horizon may be playing a game of Russian roulette if they sink significant sums into real estate markets that are nose-diving right now. Myrtle Beach and St. Petersburg both come to mind. High-net-worth investors won't feel the pinch so much if they carry a property for a few years longer than they hoped or take a loss. Middle-class clients will.

As we're all learning the hard way, housing markets, like stocks and bonds, don't always recover in a fashion that is timely for investors. What can advisors do as investors approach retirement with dreams of owning in the mountains, on the lake or at the beach? Helping clients thoroughly research their desired destiny, so that they get a clear picture of what is happening with sales, prices, inventory and days on the market, is a true way to add value.

Then ask the tough questions like: What would happen if you got sick and your new home didn't sell for a year? Are there advantages to renting? How long do you plan to live there? Are you sure you want to buy a condo when there appears to be a glut on the market, they're sitting on the market for 400 days and prices have nose-dived 25% in the past two years?

More and more, state and local realtor associations are doing online newsletters for their members that are just chock-full of the very information and statistics that can help clients make informed decisions.

Even wealthy clients will appreciate you giving them intelligence about what is selling and what isn't in their neighborhood of choice. What client isn't going to appreciate a call from you telling them: "Hey there, just wanted to share some statistics I found about your retirement destination. Just sent the information to you via e-mail. Let me know if you have any questions."

It's critical that retiring clients see the cold, hard facts about a desired destination before they make a real estate decision, especially if it's a place that they have fantasized about but never really experienced firsthand as a resident. Leitz has clients in their early 50s who bought in Florida a couple of years back and now hate the humid weather and miss their friends back in Colorado. "What you do on vacation is totally different than what you might do when you live there. Now they're saying: 'How do we get out of this?' Lucky for them, they'll just about break even," Leitz says.

A handy mantra for retirees deciding where to live is: "Try before you buy."

That was exactly the advice James E. Putman, the CEO of Wealth Management LLC, in Appleton, Wis., gave to his client, a 68-year-old retiring doctor who has his heart set on moving to The Villages, an active community for seniors just north of Orlando. "I told him this was such a major move for him, he should really rent there in the dead heat of summer, before he makes the move. So that's what he's doing for a month," Putman says.

Florida has no state income tax (unlike Wisconsin's 7% rate), which will save the doctor about $14,000 annually on his $200,000 retirement income. But while Florida and its golf courses, tennis courts and beaches may seem like a vast improvement over Green Bay's eight weeks of subzero temperatures, why not check it out first?

"His focus on buying makes a lot of sense," says Putman, "but we just want to make sure this is the place for him, not Scottsdale or Palm Springs."

Questions, comments or ideas? Please e-mail the author, Tracey Longo, at [email protected].