My neighbor slashed his home price and yours may too


It’s said that markets hate uncertainty. Funny thing since both the housing and stock market is rife with uncertainty and turbulence. What is certain is this, home values are much higher than they were ten or twenty years ago. Were there some bumps along the way like a housing bubble or a recession? Certainly. Another certainty is occasional instability, unbalance, and an eventual correction.

Case in point my neighbor down the street. About two months ago he stopped by and mentioned he was selling. I wished him well and waited for the eventual disappearance of the ‘For Sale’ sign posted in his yard. One month later he happily announced he had found a buyer. “Congratulations”, I said. 

As the weeks passed I noticed something. The sign was still up. Going to Zillow I see he dropped his original asking price by $20,000. Still no sale. Then last week he slashed the price by another $20,000. It’s a beautiful home in a very desirable neighborhood. What happened? Quite frankly, it’s none of my business. However, you could put good odds that rising mortgage interest rates may have been the culprit.

Homebuyers are facing an outright affordability crisis. Median home prices have surged over $120,000 since May 2020 and have not substantially dropped from their all-time highs while skyrocketing mortgage rates have added an average $800 to a 30-year mortgage payment. Add a dash of 9.1% annually-adjusted inflation to the mix and my neighbor’s home price reduction shouldn’t come as a surprise, and neither should the other price reductions in your town.

Market resets are the normal course of business in the wake of central bank manipulation, the fear-driven buying that follows, and the eventual pullback of easy money and low-interest rates.    Wash, rinse, and repeat. The good news is unlike the 2008 housing crisis mortgage lending standards were actually used to determine a borrower’s ability to repay the loan, which means a free fall in home values is highly unlikely. What is likely is a correction which is exactly where we find ourselves today.

While it’s alarming to see home values drop in your market, unlike traditional mortgage brokers you offer the only mortgage that solves a host of retirement complications without requiring any monthly principal and interest payments, perhaps even eliminating them altogether. The loan that many once rejected may be considered once again thanks to inflation and stock market losses.

While your neighbor’s home prices may be dropping your local older homeowners’ interest in a means to fund their retirement and solve cash flow problems is not. 

3 comments

Matthew Stasior July 22, 2022 at 4:40 am

Shannon I really appreciate the care and thought that you put into this video thank you

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Shannon Hicks July 22, 2022 at 12:22 pm

Thank you very kindly, Matthew.

Reply
James E. Veale, MBT July 24, 2022 at 12:17 pm

As monthly endorsement volume began falling at the end of fiscal 2009 and collapsing throughout fiscal years 2010, 2011, and 2012, we heard incredulous optimism at every turn. In those fiscal years, we saw total HECM endorsements of 114,692 for fiscal 2009 (the all time high for any fiscal year to date) to just 54,822 for fiscal 2012, a total fall of 52.2%. By fiscal 2019, total HECM endorsement volume was just 31,274..Yes, the reduction for fiscal 2019 was, no doubt, fueled by the changes implemented on 10/2/2017 but we have been similar changes over the last 13 fiscal years with much less disruption to HECM endorsement production.

It is expected that this fiscal year will see about 63,000 total HECM endorsements. The trouble is next fiscal year which starts on 10/1/2022 is expected to have about 60% of that HECM endorsement volume for perhaps one of the largest percentage drops in HECM endorsement volume in the history of the HECM insurance program. And much of this percentage drop will be due to the mushroom like growth in HECM Refis and their expected shrinkage in endorsement volume next fiscal. Before fiscal 2021, HECM Refi volume had never reached 9,000 endorsements. Fiscal year 2021 had 20,584 HECM Refi endorsements. With four reporting months to go for HECM Refis, this fiscal year has already produced 21,768 HECM Refi endorsements which now slightly exceed Traditional HECM endorsements by 361.

Despite the efforts in developing referral sources from financial advisers and Realtors, the results have been just as disappointing as they were in 2006, 2011, and again now. Just over eight months ago a claim was circulating that an article would soon be published that would result in a change in the fiduciary duty of a CFP that would require CFPs to consider and discuss home wealth with clients as part of any financial plan. That claim was said to just await the publication of the promised article. When that article was published in early December 2021, no such change to the CFP fiduciary standard took place. That was but another disappointment in a line of disappointments when it comes to increasing referrals from either financial advisers or Realtors.

So the question becomes when is the next fiscal year after fiscal year 2022 in which total HECM endorsements exceed 60,000? Will it take another resurgence of HECM Refi endorsements and will that once against antagonize HMBS investors to reduce premiums? Even in a reasonably good fiscal year for total HECM endorsements, H4P does not seem capable of exceeding 2,700 endorsements.

Many talk about inflation and stock market losses as if they will drive seniors to originate HECMs. Neither stock market losses nor the Great Recession did anything detectable to bring up HECM endorsement volume during the Great Recession and the fiscal years that followed.

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