Older homeowners are sitting on a goldmine

It’s not boom or doom when it comes to the housing market. While Americans are getting priced out of the housing market millions of savvy older homeowners are sitting on a goldmine. Not just a motherlode of equity but a potential source of cash flow that could be mined to help temper the impacts of inflation and as a hedge against financial shocks.

Low interest rates and government stimulus are akin to the 19th-century expansion of the railroads that helped create boomtowns. While the property values surged in such an environment history has taught us such ideal conditions are transitory.

Last spring as the Covid-19 emerged began HECM application activity as measured by case number assignments began to surge. While one could argue such an expansion shows more homeowners are seeking to tap into their record home values the data doesn’t support such a conclusion. Case numbers for

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HECM-to-HECM refinances account for 43% of all HECM case numbers recorded in June. While existing HECM borrower’s decision to harvest more of their home’s value is certainly legitimate it doesn’t expand our market footprint.

However, some lenders are seeing an increase in overall HECM application volume. “While we have done some rather successful refinance campaigns this year, it hasn’t been our primary focus. Our overall applications per loan officer are the highest we’ve seen in our company history and that includes higher than normal refinance applications”, AAG senior vice president of retails sales at AAG told Reverse Mortgage Daily.

Despite the prevalence of refinances, some lenders are seeing an overall increase in reverse mortgages from first-time borrowers. Scott Harmes, C2 Reverse National Manager told RMD the bulk of their business is from new borrowers. “We’re getting anecdotal refinance business, but the bulk of our business is in new borrowers”, said Harmes. Other lenders like High Tech Lending and Open Mortgage reaffirmed to RMD the importance of having a mix of both new and existing borrower applications.

So what could dampen the gold rush of home values? An interest rate hike by the Federal Reserve is one. On August 9th Reuters reported two Federal Reserve officials who said that the U.S. economy is growing rapidly and that while the labor market still has room for improvement, inflation is already at a level that could satisfy one leg of a key test for the beginning of interest rate hikes. The Fed estimate of 3.5% annual inflation exceeds the central bank’s inflation target of two percent. Should inflation surge the Fed could find itself painted into a corner to use their primary tool to slow inflation.

An imminent rate hike? No. But a move toward a serious discussion to do so? Yes. What’s more likely is a tapering of the Fed’s bond purchasing, which we reported on last week. The Federal Reserve isn’t the only one showing reluctance. Potential homebuyers are increasingly choosing to stand on the sidelines and save their cash being unwilling to purchase a home in an artificially inflated market. This certainly won’t push home values down quickly but it certainly may dampen the growth of home appreciation.

In the meantime, older homeowners may want to cash in on part of their claim and transform some of their home’s value into cold hard cash.

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