As the housing market goes, so does the HECM. One real estate economist makes these predictions for 2022.
Continue reading2022 Outlook for the HECM & Housing Market
A window of opportunity is closing
As the housing market cools 2022 will require a pivot away from HECM refinances. Older homeowners stand to gain the most today.
In the first week of October traditional mortgage application volumes have plummeted to a three month low, and traditional mortgage refinances transactions are 16 percent lower than the same week one year ago. Then in late September the Federal Reserve signaled they would be tapering its $120 billion purchase of U.S. Treasury bonds and mortgage backed securities.Then there’s housing inventory which is up 30 percent since May. While some of these factors are not directly tied to the reverse mortgage market each will have an impact on interest rates, and most importantly, consumer sentiment in the housing market.
Meanwhile, U.S. homeowners 62 and older are sitting on a mountain of home equity. NMRLA’s RiskSpan Reverse Market Index shows senior housing wealth grew by 3.7 percent from the first to the second quarter of 2021 for a record total of $9.57 trillion. Is the window of opportunity closing for these equity-rich homeowners who haven’t got a reverse mortgage? It may be for those that have a high mortgage balance that leaves them on the cusp of qualifying at today’s interest rates and record home values. Then there’s older homeowners with little or no mortgage balance are likely to qualify in the future, albeit with higher interest rates and potentially lower home values.
Who would of thought we would see such ideal an ideal housing market and favorable lending conditions in an economy many expect is headed into a deep recession? However, as the housing market inflated the purchasing power of the U.S. dollar was steadily eroded by inflation, so much so that Social Security recipients will see a 5.9% cost of living adjustment in 2022 as we reported last week.
So the logical question is what’s next? First is the pivot.
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Since March HECM-to-HECM refinances have accounted for nearly 50% of all applications. Surprisingly that trend has persisted revealing that the market’s refi potential may not be quite tapped dry. But at some point it will. Looking forward to 2022 HECM the majority of endorsement volume will have to be drawn from first-time HECM borrowers. Today anecdotal reports show lenders and brokers are anticipating a move to a more customary lending market and are planning accordingly.
The shift to a more typical HECM market in 2022 is likely to be aided by increasing inflation and a growing sense of unease about the American economy. If history has taught us one thing it’s that financial need or anxiety are often the forces that push most to even consider a reverse mortgage in the first place. Certainly there are the mass-affluent who see an opportunity to hedge their future cash flow, but for most it’s a pragmatic decision fueled by their current financial circumstances. And that’s our window of opportunity. Record home values and low interest rates amidst an economy that’s flashing the warning signs of a recession and possibly stagflation. This increasingly makes the reverse mortgage an increasingly attractive bulwark against the ravages of inflation and economic hardship.
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How to tap into your home’s value safely
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EPISODE #693
Consumer Reports: How to tap into your home’s value safely
Consumer Reports outline several ways a homeowner may tap into their home’s equity safely. Only one choice doesn’t require monthly mortgage payments. .
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5 Cities where Sellers are Reducing Prices
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EPISODE #691
Sellers are reducing prices in these cities
A number of home sellers are reducing their asking prices. The locations of price reductions may surprise you…
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The Appraisal Crunch
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EPISODE #689
The Appraisal Crunch
Both reverse and traditional mortgage originators are feeling the crunch of appraisal turnaround times. RMD explains why and what HECM professionals have to say.
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Us Existing-Home Sales Fell For The First Time In Over A Year, Price Growth Slows
You’re running out of time! Here’s how to fix it
If more than one-third of your reverse mortgage loans are HECM-to-HECM refinances you’re running out of time. Time to refurbish your loan pipeline. Time to build effective and productive referral relationships.
Continue readingA Housing Bubble or Cool-Down?
The government-sponsored loan that’s ignored
The appeal and eligibility of reverse mortgages for older homeowners are largely driven by home values and interest rates. And there are signs that the housing market may be beginning to falter. First new home sales rose in June and July but that’s only the second increase in the last six months. Second, new home sales have steadily fallen since March with only a modest increase in July. Third, housing inventory began steadily increasing this spring, a trend that’s expected to continue now that the eviction bans have ended. Keep in mind evictions and sales of rental properties will lag several months as landlords step through the arduous eviction process so don’t expect an immediate surge for several months.
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What we are witnessing is an artificially inflated housing market spurred by slashing interest rates and government stimulus. The question is how long can this continue? After all, today’s low interest rates that have skyrocketed a homebuyer’s purchasing power are unlikely to go lower. So what happens when banks can foreclose, landlords can sell rentals, and banks increasingly tighten credit and strengthen their cash positions. Truth be told, this ‘irrational exuberance’ to quote Alan Greenspan will be paid for. So are we in a housing bubble or simply a boom in prices? Core Logic’s Chief Economist Frank Nothaft expects a boom rather than a bubble. Nothaft says I don’t expect we’re going to see a housing price crash. I don’t think we’re in a bubble.”
What would sustain today’s record home values? Continued constraints in housing supply, and continued low interest rates. What could trigger a housing bubble? CNBC real estate correspondent Diana Olick says “you need a catastrophic economic event to make a housing bubble pop. You can definitely have a pullback in the heat in the housing market. But to really have that market crash there needs to be that event”. In 2008 that catastrophic event was the failure of investment banks and investment losses from subprime-related investments to name a few.
So barring any sudden economic crisis or a sudden several of the Federal Reserve’s interest rate and inflation strategy we’re more likely to see the housing market cool down. And truth be told that would be the ideal outcome with far less damaging consequences for homeowners and the U.S. economy.
Certainly, evictions and foreclosures will increase overall inventory but not enough to offset a decade of lackluster new home construction. This is good news for reverse mortgage professionals and their future borrowers. Elevated home values and low rates will provide increased borrowing power allowing many homeowners to retire their existing mortgage and perhaps secure a line of credit for these most uncertain times.
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The 10 Most Overvalued Cities in the U.S.
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Continue readingThe Wild West Housing Market
It’s not boom or doom when it comes to the housing market. While Americans are getting priced out of the housing market millions of savvy older homeowners are sitting on a goldmine. Not just a motherlode of equity but a potential source of cash flow that could be mined to help temper the impacts of inflation and as a hedge against financial shocks.
Continue readingFederal Reserve urged to wind down asset purchases
Do you know who the biggest player in the housing market is today? Is it hedge funds, REITs, or the largest developers? If you answered the Federal Reserve, congratulations.
Some members of the Federal Reserve’s policy-setting committee want to end the Fed’s purchasing of $40 billion a month of MBS (mortgage-backed securities) sooner than later. The question is how much and how soon. In a presser following the Fed’s two-day meeting discussing how to reduce asset purchases Federal Reserve Chairman Jerome Powell said, “There really is little support for the idea of tapering MBS earlier than Treasuries. I think we will taper them at the same time.”
The wind-down of asset purchases will put pressure on yields. Today, with the Fed consistently purchasing most mortgage-backed securities lenders don’t have to offer higher yields to attract investors, this allows them to offer lower rates. When rates eventually do increase modestly homebuyers will have to reconsider the price range homes they consider for purchase. Sellers may also rethink their asking price as home affordability erodes. Both would cool the pace of housing appreciation and bring some modicum of normalcy to an overheated market.
Monday Federal Reserve Bank of Atlanta President Raphael Bostic said the central bank should move to taper asset purchases in light of recent strong employment gains. Speaking of the timing of tapering Bostic said, “Right now I’m thinking in the October-to-December range, but if the number comes back big” as with the last report “or maybe even a little bigger, I’d be open to moving it forward. If the number really explodes, I think we would have to consider that.”
While employment gains are substantial, many economists are concerned as millions of small businesses cannot fill open positions. Employer-mandated vaccinations or mask-wearing may further strain the rate of employment growth when coupled with the $300/week federal unemployment bonus. Both could postpone the Fed’s tapering of asset purchases. However, inflationary concerns could also spur the central bank to accelerate its timeline. The central banks’ mantra is they see the surge of inflation as merely transitory. Time will certainly tell.
For now, even a moderating seller’s market still will benefit reverse mortgage applicants in the short term when coupled with historic low interest rates significantly increasing their available loan proceeds. While it’s uncertain how long the market will continue its run, reverse mortgage originators couldn’t ask for a more ideal market.
-Shannon Hicks
