Turning inflation on its head with a reverse mortgage

How to turn inflation on its head

When it comes to inflation the American public is getting a harsh street-level lesson served up like a one-two punch. There’s a dirty little secret about inflation. It doesn’t harm everyone equally and some actually benefit from it. 

Monetary inflation and low-interest rates have helped boost asset prices, more specifically home values. As it’s said, those with the gold make the rules. It can also be said, those with the gold stand to make more. These would be large corporations, hedge funds, and investment banks who know how to tap into cheap money and then purchase assets that will inflate in value.

One group of Americans who stand to benefit are older homeowners.

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2 comments

The Positive Realist May 16, 2022 at 11:48 pm

While home price deflation could become a reality in large sections of California, it is unlikely to spread in any material way (over 10% loss in home values) along the coast except in the case of another mortgage bust or similar financial calamity or “panic.”

To estimate net proceeds from a sale, one must reduce such home equity calculations by unrecoverable fix up costs and selling expenses which are generally on home sales prices and not home equity. This could result in the estimated net sales proceeds being a few trillion lower. Then reduce the net proceeds by anticipated income taxes for homes sold in the lifetime of the seniors net cash flow from these homes could be in the range of just 7 trillion.

Yet to understand the potential for reverse mortgages, it is not just home equity estimates that are needed but also one of the two variables, total home values or total debt. Hopefully, that will be provided along with estimated home equity in the future

Reply
Shannon Hicks May 17, 2022 at 5:46 am

Agreed- understanding the impact of aggregate home values and housing debt is key.

Reply

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