Part 2 of our exclusive interview with Martin Andelman
Will home values crash in 2020?
In our second segment, we ask Martin Andelman if we should expect a crash in housing values as a result of the coronavirus and the economic shutdown. In 2007 Marting founded Mandelman Matters, a blog dedicated to topics ranging from mortgage lending, finance, and popular culture.
4 comments
Like Martin, it seems home prices will drop some time in the near future. Home prices generally drop because demand drops. If most first time homebuyers have lost their jobs, will starter homes go up in value or generally drop? However, Martin was speaking about reactions of sellers to market realities which sounded familiar.
Normally we see home prices start to erode when demand is negatively impacted by such things as unemployment or mortgages require higher down payments and put higher credit demands on borrowers. The same is generally true when real estate taxes suddenly rise sharply.
In the securities markets one rarely hears a seller say that he is testing the prices on a market but sellers of real estate say that frequently. The securities market are very efficient at providing information on pricing while the real estate market is not.
As to seniors looking to “accessing equity,” this is but another example of industry jargon not providing a clear meaning to what it is seniors are really looking for. It is like the ridiculous language about it is now time that the house starts paying you. This is nonsense. What seniors are looking for is cash, not accessing their equity. I have yet to see a single senior get paid by their house.
Seniors are looking for cash today as in other bear markets. Now is the worst time to be looking for cash, since waiting usually only leads to desperation and poor judgment. Most seniors are not prepared for the driving need for cash and cash resources in bear markets. They need to see reverse mortgages as a source of cash and that especially the HECM line of credit is a preferred source of cash. One of my former CPA partners was older but financially astute. He used to say when you need money, you have a very difficult and costly time trying to find it but when times are good, everyone is willing to lend.
According to some in the industry, financial advisers have begun as never before to understand that HECMs are mortgages that are designed to provide cash to their clients in their senior years. If this outlook remains after the Covid-19 disaster and grows without dissipating quickly as the economy turns productive once again, there is a real change that our message will start to take root and stimulate long-term HECM endorsement growth. The March 2020 case number assignment count was encouraging as the highest such count in 30 months. The April 2020 endorsement count, however, was the worst seen since 2002, eighteen years ago Fortunately, the problem was likely one of HUD staffing and the Covid-19 situation than a problem in HECM pipelines. But before making unfounded conclusions lets wait to hear from HUD.
I agree 100% with Martin – Not all home values will come down right now – only those that many seniors now live in and will feel the loss of value if they decide to proceed with Reverse Mortgage sometime in the future – they are getting knocked around with 401’s and market accounts – 5%, 10 % and up to 15% reductions in their retirement accounts – the shoe to drop next will be their home value – like seniors, they may not live long enough to see it fully recover.
Bill Krone
Bill,
Today we hear of parts of the rural US which are in danger of losing their only medical facilities. If those reports are accurate, home in those areas could become all but worthless. Areas where Covid-19 has yet to hit with any forth could see their home values rise based on what those regions offer residents. There are three basic rules that govern the value of real estate — location, location, and location. Any other discussion is far too ethereal to have much earthly application.
As to affordability, three things govern how most laymen measure that — size of total house payment including impounds, size of total house payment including impounds, and size of total house payment including impounds. In some areas, consumers are watching their jobs melt away without much hope of seeing them return until well into recovery. So are foreclosures on the horizon? Again it depends what part of the country is being discussed. Since real estate markets are anything close of efficient, we will not know what the impact is nationally but we should see indications in some communities by the end of spring.
Where are you getting your information on portfolios and qualified retirement plans? It is not just the value of the underlying assets losing value because of market conditions but also because of the liberalization of qualified plan rules that allow participants to take out up to $100,000 distributions without any early withdrawal penalties and loan amounts increasing that could contribute to lower qualified retirement vested amounts than most qualified retirement plan experts had anticipated before 2020. Anecdotally there are estimates that the average pension plans are now 15% ON AVERAGE below expert expectations last year. If 15% is the average, that means at this time some plans could be experiencing plan asset drops closer to 30%. Will these plan assets recover their full value back to their pre 2020 values before the end of 2021? Who knows?
Finally, as to seniors not living long enough to see their all of their assets recover to their former peak values, when has that ever been the case for the vast majority of seniors? Seniors who live close to 3 decades past age 62 will generally experience 3 to 4 bear markets in those years. A major determinate in the value of assets at death is how long ago was the last bear market before death.
[…] The reality is because there’s no due date you can never be late”, says Martin Andelman in his recent interview on HECMWorld. And, unlike your traditional mortgage one can recoup those payments should they need […]