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EPISODE #732
Why Ramsey Solutions’ housing forecast may not age well
“Right now is the best time to buy a house in the next five years. And here’s why: prices are not gonna go down”, says Ramsey Solutions, the company founded by the financial celebrity and well-known commentator Dave Ramsey. Is he right?
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1 Comment
We are blessed to be in an industry with so much statistical information available to us. Yet lenders hide proprietary stats as if they were so ugly they have to be hidden from sight for the greatest good. Yet if one pushes past superstition, the HMDA reports bring us a fair idea of the volume of closed proprietary reverse mortgages.
There are many theories why reverse mortgage closings are so much lower than their all time highs in 2008. Most are generalizations and unsupported opinion. Most want to deal with the somewhat skewed trends since fiscal 2017; yet our history goes back over three decades. Many lenders want their originators to believe the questionable idea that seniors do not remember what HECM PLFs were on 10/1/2017, yet the stats show that while the number of those who are over 62 today and own homes is significantly larger than it was on September 30, 2008, the overall mathematical correlation is an inverse pattern. Why? Some say it is the loss of experienced originators, others say it is an unexpected resistance from the Baby Boomers to reverse mortgages (when exactly the opposite expectation was promoted for several years before and after 1/1/2008 by those who promoted themselves to be “experts” on the subject), and on and on it goes. The only thing that has shot up in volume (and then collapsed) in the last 5 years are HECM Refis.
As reported monthly by HUD, its portfolio of active (not terminated or not in HUD’s unassigned pool) HECMs has dropped from over 629,000 as of September 30, 2014 to under 399,000 as of May 31, 2022. That means in the last 92 months, we did not produce sufficient HECM endorsements to offset terminations and assignments. While assignments reached an all time high in the last decade, the volume of remaining HECMs serviced by HUD’s servicers have also been dropping dramatically due to terminations. While many in the industry will not voice it, the number of active HECMs have been decreasing by an average of about 2,500 HECMs per month.
Many in the industry intentionally ignore history because of its embarrassing truths. Yet the HECM endorsement volume for fiscal 2022 is predicted to be the largest such total since fiscal 2011. The disappointing prediction is that HECM endorsement volume for fiscal 2023 may drop by well over 30% to one of the largest percentage losses in the history of the industry. The largest percentage drop was 35.33% in fiscal 2019. Could the percentage drop for fiscal 2023 be worse than 35.33%? Some believe that the trends could result in an over 40% drop in HECM endorsement volume. This has merit as lenders insist on using the one year CMT index on monthly adjusting HECMs and lower premium payouts from investors result in higher margins.
Some argue that the situation has changed and it is what it is so history is useless in trying to explain it. Yet these are those who forget the lessons of history to their own detriment.