One of the things the reverse mortgage industry needs is for home values to rebound and a survey consisting of 92 economists and other housing analysts by MacroMarkets LLC says it will start next year.
On average the analysts surveyed expect home prices as measured by the S&P/Case-Shiller national index, to rise about 12% in the five years ending Dec. 31, 2014. As of Dec. 31, that index was down about 28% from its peak level in mid-2006.
Some of the forecasters surveyed by MacroMarkets were far from the average. Joseph LaVorgna, an economist at Deutsche Bank, sees home prices rising 37% by the end of 2014. Both Anthony Sanders, a professor of real-estate finance at George Mason University, and Gary Shilling, president of A. Gary Shilling & Co., expect declines of about 18%.
Separately, the U.S. Census Bureau reported that single-family housing starts in April surged to a seasonally adjusted annual rate of 593,000, up 10.2% from March. Ivy Zelman, chief executive of research firm Zelman & Associates, said builders stepped up production ahead of the April 30 deadline for sales qualifying for a federal tax credit, but since then have cut back.
Even if home values start to bounce back, the posibility of rising interest rates pose challenges for the reverse mortgage industry. First, rates rising will reduce the amount of money available to consumers. Second, if rates rise the amount of equity in borrowers homes will decline according to a new report from Annaly Capital Management.
The report found the average homeowner has about 38% in home equity in his or her house, down from the 60% to 70% range from the1990s. In other words, the average loan-to-value of the average house in the US has risen to about 62% today. (This is an average; backing out the approximately 1/3 of homeowners with no mortgage at all likely makes the average among those with a mortgage somewhere around 85% loan-to-value.)
If interest rates were to rise 100 or 200 basis points, real estate values would decline says Annalay. Compared to current interest rates, the values of homeowners’ equity would decline by 19% and 39% respectively.