Reverse Mortgage Market Index Falls 18% from Peak, Home Equity at $3.3 Trillion

April 19th, 2011 | by John Yedinak Published in Data, News, Reverse Mortgage | 1 Comment

The amount of home equity held by seniors aged 62 and older fell to $3.3 trillion at the end of 2010 according to the latest data from the Reverse Mortgage Market Index (RMMI).

Provided by RiskSpan, the RMMI provides a framework for the quarterly measure of reverse mortgage market opportunity by determining the market size of the senior population’s home equity. The latest data shows the RMI fell to 157.7 in Q4 2010, 0.3% lower than the preceding quarter’s level.

On aggregate, the level of senior home equity has fallen by 18% from peak levels in 2006, compared to a 31% decline for the total population of home owners. During the housing boom in 2006, estimated senior home equity reached $4 trillion.

“The impact of falling housing prices on aggregate senior equity levels has been partially offset by the demographic growth of the senior population and its lower mortgage debt levels relative to the rest of the population,” said RiskSpan. “National home prices and mortgage debt levels indicate a stabilizing of the RMMI.”

According to RiskSpan, the growth of the reverse mortgage market largely depends on the senior population growth, housing prices and senior debt levels. Based on RiskSpan evaluations of U.S. census data, the population of seniors aged 62 and over is projected to grow from its current level of 50 million to 83 million by 2030.

“While the growth of the senior population outpaced the rate of growth of the rest of the population over the past 10 years, the divergence in growth rates will widen even further over the next 20 years,” said the report.

Senior mortgage debt levels have also started to look more like the general population, suggesting a decreasing aversion to debt and therefor making reverse mortgages more appealing. “It also indicates that seniors now have less equity available by the time they are eligible for the product,” said the report.

View a copy here.

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The_Critic

Wow, how misleading. You would think that RiskSpan would carefully place caveats throughout its article. Its conflicting overgeneralizations remind one of the adage: “Figures lie and liars figure.”

For example, RiskSpan states: “The impact of falling housing prices on aggregate senior equity levels has been partially offset by the demographic growth of the senior population and its lower mortgage debt levels relative to the rest of the population.” Then it goes on to conclude: “…over the last decade senior mortgage debt levels have begun to converge towards the aggregate debt level of the total population. …it also indicates that seniors have less equity….”

RiskSpan fails to describe how it handles debt in excess of the value of the underlying collateral. Once debt exceeds the value of the home, the excess either is personal debt (recourse) or has no impact on any equity related to the home or the homeowner (nonrecourse). It does not even say if it has the information needed to make that determination or if that information would be material to its conclusions. So the information which RiskSpan provides in the article is of very limited value at best and is perhaps misleading if not very misleading. Who knows?

Soon we will see those selling LTC insurance and those who want to use home equity to pay for Medicare citing and even championing this information as one of the principal reasons why the home equity of seniors is an important source for trying to reduce the cost of Medicare and eventually Medicaid.