Last week, the National Reverse Mortgage Lenders Association (NRMLA) reported that American seniors held $5.76 trillion in home equity at the end of the third quarter of 2015 — which, according to NRMLA, “rocketed the NRMLA/RiskSpan Reverse Mortgage Market Index to an all-time high of 200.19,” according to a release sent by the company.
Because the source for the data is NRMLA, we should be careful. Reverses have a place, but it’s a far narrower window than the usual everybody-should-have-one ideology common to reverse salespeople. Reverses work best if you’re old — 75, but 80 is better — if you won’t outlive the benefit, if you have no heirs, if you can’t or won’t downsize … a whole bunch of cautions.
The equity data should not be a surprise, but it is interesting. We already knew that US home equity has risen a ton since rock bottom in 2009. The Fed’s Z.1, B.101 shows aggregate home equity growing from $6.6 trillion to $12.4 trillion by fall 2015. Them ain’t peanuts.
The reversers would be delighted to loan to you the money you already have. We also know that the borrowers worst hurt by subprime loans were minority and younger households.
An element not often considered even by real estate pros: The component of a home appreciating over time is the land that it sits on. Not the house, which only depreciates — wear and tear, and architectural obsolescence.
A lot of old folks (no insult intended, as I’m soon to be 67) have stayed put for a long time. Meanwhile, most metros areas have grown outward, and an older-owner’s home is often ripe for remodel or even scrape-off, most of the value “in the land.”
The main thought for professionals and civilians alike: We’ve got an ocean of baby boomers living in big equities, many “house poor” who could use some cash. Every one of those boomers (like me) struggles to imagine retirement or actual old age (who, me?!?), and needs high-quality counseling about trading down (harder to do every day that we age), spending down investments (to those who have investments, spending them is anathema), and in every way how best to use accumulated home equity.
Lou Barnes is a mortgage broker based in Boulder, Colorado. He can be reached at lbarnes@pmglending.com.
