If there’s a time older Americans could potentially utilize their home’s equity it is now, thanks to record high inflation. However, that window of opportunity is closing thanks to a softening housing market. Redfin reports that…
[read more]
home listings are down 12% from one year ago and two-thirds of for-sale homes are on the market for at least 30 days. Comparable sales used in appraisals will see reductions as well. CBS News reports nationally 1 in 7 properties have had a price reduction. That’s twice as many as one years ago. Several markets are seeing a surge in home price cuts. Nearly a third of homes in Reno, Nevada has had property price reductions. In Sacramento, California 25% of home sellers are dropping their asking price.
As unsettling as these trends may be to the casual observer, they are in fact a natural progression of the real estate cycle, especially after two years of red hot sales and home price gains fueled by historically low-interest rates. How we respond to such market forces will determine the trajectory of reverse mortgage loan volume throughout 2022 and into the next year.
One group of older homeowners that may be at risk are those who took a cash-out to refinance mortgage loans. In October 2021, the Urban Institute reported that over 1 million homeowners took a cash-out to refinance loan between 2018-2020, with an astonishing 442,000 getting a cash-out refi in 2020 alone. Those numbers were likely even higher in 2021. Then there are HELOCs or home equity lines of credit. The Urban Institute reports that over 944,000 homeowners over the age of 62 took a HELOC in the years 2018-2020. Most of those who took out these loans increased their monthly mortgage obligation, a manageable choice when the annual inflation rate or CPI (Consumer Price Index) measured about 1.5%. However, with annual inflation reaching 8.5% last month that larger mortgage payment may be a nearly unbearable burden for tens of thousands who are being squeezed by the high cost of living.
In summation, these factors mean that the net tangible benefit of a reverse mortgage is perhaps stronger than it’s ever been before, but that benefit is fading as home prices decline. The challenge will be finding seniors with loan-to-value ratios that may qualify them for a HECM or jumbo reverse mortgage.
Consequently, partnerships with local mortgage lenders, financial professionals, and other senior service providers could reach the select cohort of older homeowners who may be motivated to relieve themselves of the burden of monthly mortgage payments, before such a strategy is no longer an option.
Additional reading:
Home sellers around the U.S. are cutting prices, especially in these 10 U.S. cities
More Older Americans Are Drawing Wealth from Their Home Equity, but Racial Gaps Persist
[/read]
2 Comments
Shannon,
Excellent statistical information, those that have watched received valuable information to use in their origination efforts. You offer the industry usefull information Shannon.
Thanks for your broadcasts,
John
Unfortunately, the number of senior households who own this home equity is not cited in the original sources providing such information.
Assuming that the number of senior homeowners is 40 million, the mean home equity owned by a senior homeowner is $275,000. Of course, this certainly is not all that meaningful to those with less than $275,000 in home value nor is it all that meaningful to those with millions in home value who also possess home equity in equal or lower millions.
What is needed is information based on a meaningful strata of home values with the related 1) home equities and 1) number of senior homeowners in that stratum also provided. Until that information is developed and reported periodically, total home equity of senior homeowners is an interesting talking point lacking meaningful and relevant substance.
To believe that the information that is provided through most publications on real estate and mortgages is reasonably accurate is not far fetched but to believe that it is meaningful , current, and relevant may be reaching for “a bridge too far” for comfort. Numbers are just that, numbers. They may help with deciding how to successfully market yet they may be too old to be relevant to a highly successful marketing campaign. For example, HUD’s monthly HECM Snapshot Report is helpful in analyzing endorsement data but such data comes to us about four months on average after the relevant application was taken. That means that the Principal Limit reflects an appraisal that is months old which is based on sales data that is generally more than a month old when reported in the appraisal.
As a skeptic by professional training as a CPA years ago, age of the information we rely upon is critical to the sales results we want to obtain in this industry, while talking points can be reasonably old or recent, depending on the topic at hand. Discernment is a slippery yet valued attribute when used in a manner not intended to harm others.
Once you have the broad information that a trusted provider like Shannon presents, then for that information to be pragmatically useful in marketing success at a reasonable cost the work in analyzing that data has yet to start.
Shannon, the information you provide is most appreciated but for it to be useful in marketing, the analytical work must quickly start from there.