U.S. homeowners took big hits to their home equity following the housing market bust and subsequent economic recession of the last decade. But now that the economy has had time to recover, it appears the numbers are in favor for Americans’ housing wealth and the possible reverse mortgage opportunities on the horizon.
Housing wealth is often considered the most valuable asset a person can have, especially for older adults who are either nearing or currently in retirement. On average, the homes of American households age 65 and older constitute 33.1% of their net wealth, according to a Wall Street Journal analysis of seniors’ housing wealth derived from sources such as the Boston College Center for Retirement Research and the Journal of Family and Economic Issues.
From a reverse mortgage industry standpoint, home equity representing roughly one-third of older homeowners’ net worth is a welcome statistic, and one that gives weight to the validity of leveraging housing wealth during retirement.
Last year, seniors’ home equity grew $147 billion in the third quarter alone, lifting the aggregate value of their equity to $5.76 trillion, as measured by the latest Reverse Mortgage Market Index from the National Reverse Mortgage Lenders Association and RiskSpan. This growth represented the eighteenth consecutive quarterly increase in seniors’ home equity. As seniors experienced significant gains in the value of their real estate, so too has the greater U.S. homeowner population.
Overall, American homeowners saw their housing wealth cut $7 trillion during the housing market downturn of 2006-2009, according to Federal Reserve data recently cited by Bloomberg Business. As the economy recovered since then, the value of homeowners’ equity has nearly doubled from the most recent low of approximately $6 trillion during the first quarter of 2009, reaching just over $12 trillion in 2015. Looking ahead, economists expect housing wealth to reach new highs as early as the second quarter of this year.
The number of homeowners with more than 20% equity is rising rapidly, according to the most recent data released by CoreLogic (NYSE: CLGX).
One million U.S. borrowers regained equity in 2015, bringing the total number of mortgaged residential properties with equity at the end of 2015’s fourth quarter to approximately 46.3 million—or 91.5% of all mortgaged properties, according to CoreLogic.
Nationwide, borrower equity also increased year-over-year by $682 billion in the fourth quarter of 2015, or 11.5%, signaling the thirteenth consecutive quarter of double-digit growth, according to Dr. Frank Nothaft, chief economist for CoreLogic.
“Higher prices driven largely by tight supply are certainly a big reason for the rise, but continued population growth, household formation and ultra-low interest rates are also factors,” said CoreLogic CEO Anand Nallathambi in a written statement. “Looking ahead in 2016, we expect home equity levels to continue to build, which is a good thing for the long-term health of the U.S. economy.”
Even some of the hardest hit housing markets are seeing their home equity return, with the total number of mortgaged residential properties with negative equity dropping to 8.5% in Q4 2015, down 19.1% year-over-year compared to the fourth quarter of 2014. Collectively, the national aggregate value of negative equity was $311 billion at the end of 2015, a year-over-year decline of 10.7% from $348 billion in Q4 2014.
With 64% of workers feeling they are behind schedule when it comes to planning and saving for retirement, according to the Employee Benefits Research Institute’s 2015 Retirement Confidence Survey, substantial increases in home equity could be what it takes to push more American homeowners toward alternatives to working longer as a means to shore up savings for their non-working years.
Time will tell.
Written by Jason Oliva