Home equity controlled by U.S. homeowners aged 62 and up reached $6.2 trillion in the fourth quarter of 2016 according to data from the National Reverse Mortgage Lenders Association, a gain of 2.8% from the previous quarter.
The Washington, D.C.-based trade group found a rise of $170.7 billion between the third and fourth quarters of last year, good enough to boost its proprietary Reverse Mortgage Market Index (RMMI) to a record high of 221.75.
Developed with the Tysons Corner, Va.-based research firm RiskSpan, the RMMI tracks equity by subtracting the amount of mortgage debt held by Americans aged 62 and older from their associated home values, then indexing the result against the baseline amount of 62+ equity in March 2000, when the RMMI was first calculated. Back then, seniors held $2.38 trillion in home equity.
The fourth-quarter result represented a 9.0% index gain from the same point in 2015, outpacing the previous two years: 2015 saw a rise of 8.5%, and 2014 had an uptick of 8.0%.
“The strong RMMI in the fourth quarter of last year shows that home equity continues to be a valuable asset for homeowners 62 and older,” NRMLA president and CEO Peter Bell said in a statement announcing the news. “It’s time for consumers to study what it means to have home equity and to learn about its strategic uses, including how it can be used to support retirement goals.”
Since the housing crisis and the Great Recession, seniors’ home equity has been on a steady upward trajectory, registering gains in every quarter since the midpoint of 2011.
Of course, just because the proverbial horse has a full trough of water doesn’t mean you can make him drink. Just over the past few months, a variety of studies have shown that seniors remain deeply afraid to tap into their home equity.
As RMD reported last month, researchers from the Urban Institute released a laundry list of reasons why older Americans avoid home equity conversion products, from a generational aversion to debt — harkening back to a time of “mortgage-burning parties” when loans were considered something to be paid off and nothing more — to a lack of name-brand lenders in the marketplace, which the researchers said could lend an air of trust to an industry that continues to deal with the stain of prior scams.
The researchers, Laurie Goodman and Karan Kaul, had a less aggressive estimate of total home equity held by Americans aged 62 and up, pegging the amount at $4.4 trillion — about $3.6 trillion of which, they said, seniors can actually access after accounting for mortgage draw limits and other variables.
Just yesterday, RMD cited a pair of studies from the National Council on Aging and Boston College, which showed that consumers are distrustful of the “reverse mortgage” name — overwhelmingly preferring a Home Equity Conversion Mortgage line of credit, but only if they didn’t know what it was called — and throughly confused about the “complex” reverse mortgage loan.
Steven Sass, a researcher at Boston College’s Center for Retirement Research, joined the chorus of academics who have recommended that seniors establish a HECM line of credit as early as possible to take advantage of long-term growth; in a new twist, he referred to a separate study that called out the risks associated with waiting to take out a reverse mortgage at the last minute as interest levels rise and borrowing limits decline.
“Securing a line as early as possible, and letting it grow until needed, is generally well worth the upfront cost,” Sass wrote.
However, he writes about the same pesky mental roadblocks that prevent many older homeowners from considering the HECM line of credit as an option.
“Strong behavioral and informational barriers, however, have impeded such uses of home equity that could improve retirees’ wellbeing,” Sass wrote. “Whether future retirees will exercise these options remains to be seen. But the pressures to do so will be much greater than they have been in the past.”
Written by Alex Spanko