According to Multiple Metrics, Home Equity Levels Keep Rising

By multiple counts, the level of untapped home equity in the United States just keeps rising.

A pair of reports released this month show that the recent trend continues unabated, with real estate analysis firm CoreLogic reporting a 13.3% year-over-year gain among all Americans with mortgaged homes and the National Reverse Mortgage Lenders Association finding a 1.9% increase in home equity for seniors aged 62 and older.

“The numbers tell a reassuring story about housing wealth in an era when large numbers of retirees and near-retirees fear running out of money before the end of their lives,” NRMLA executive vice president Steve Irwin said in a statement announcing the group’s results. “Homeowners 62 and older can responsibly tap some of the home equity they’ve built over time to stabilize wobbly retirement stools and support their longevity.”

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Each quarter, NRMLA and data modeling firm RiskSpan release the Reverse Mortgage Market Index, which measures senior home equity as defined by the difference between home values and mortgage debt held by Americans over the age of 62. In the first quarter of 2018, seniors saw their homes rise in value by $182 billion, or 2.2%, while their mortgage debt inched up 0.3%.

The index’s current value of 244.73 represents yet another all-time high since NRMLA and RiskSpan began calculating that value in 2000. Aside from declines during and immediately after the Great Recession, the index has been on a steady march upwards, hitting $6.8 trillion in the first quarter of the year.

Meanwhile, by CoreLogic’s reckoning, overall U.S. home equity ballooned by a little over $1 trillion over the last four quarters, a 13.3% gain over this time last year — which works out to about $16,300 per homeowner.

“Home-price growth has accelerated in recent months, helping to build home-equity wealth and lift underwater homeowners back into positive equity — the primary driver of home equity wealth creation,” CoreLogic chief economist Frank Nothaft said in a statement about the results.

Yet again, Western states led the way in equity gains, with California homeowners seeing a whopping $50,000 increase. Washington State followed close behind with $44,000 per homeowner, with Hawaii at $33,000.

“Home equity balances continue to grow across the nation,” CoreLogic CEO Frank Martell said. “In the far Western states, equity gains are fueled by a long run in home price escalation. With strong economic growth and higher purchase demand, we expect these trends to continue for the foreseeable future.”

Written by Alex Spanko

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  • The main driver of reverse mortgages should be rises in home values (not necessarily home equity). The results once again point to the fact that appreciation rates are local, local, and local. Without a reverse mortgage that ignores national appreciation rates and focuses on local appreciation rates, losses will remain the rule rather than the exception.

    The foundation for Principal Limit Factors should be local appreciation rates rather than a far fetched and unjustified national rate. Using the same appreciation rate in constructing PLFs for HECMs means that areas with high appreciation will generally have much fewer losses than are incurred in low appreciation rate localities.

    Yet rather than considering local appreciation rates HUD has consistently adopted an uniform appreciation rate approach. Unfortunately, HECM MMIF losses have no bottom while gains to the MMIF are restricted to the MIP collected. This means that the old assumption that HECM losses will eventually even out with HECM gains is rather peculiar at best. While values beyond the HECM lending limits help reduce exposure to loss, most of those higher values are found in locals where appreciation rates are on average substantially higher than those of homes with values of 70% or less of the lending limit.

    Since the Great Depression in home values during 2006 through 2008, the correlation between rising home values and HECM endorsements has all but vanished, especially in the period of secular stagnation. While rising home values are important, there is no indication how that works any longer when it comes to seniors making the HECM decision.

    Since the turn of the decade we have not seen any indication that endorsements will rise to the levels once cheered in NRMLA conventions. Since that turn we have heard talk of near-term recovery and bottoming out on endorsement levels. So far all of that optimism has proven untrue and its propagation only harmed the morale in the industry. There is an old adage that states that honesty is the best policy but somehow that has been lost in our industry over the last decade. Because of how entrenched HUD is in its PLF assumptions and with the rise of optimism underlying so much of what is said in the industry, it seems what looked like short-term endorsement stagnation is much, much worse. If secular stagnation ends in fiscal 2019 it will far more be likely be due to a low endorsement count for fiscal 2019 rather than one significantly higher than 61,000 endorsements. While fiscal 2018 endorsements may have a chance of exceeding fiscal 2016 endorsements, it seems the only parts of the current pattern in secular stagnation that are risk this fiscal year is its 1) slightly downward and 2) peak to valley trends.

    The cause is NOT lost but recovery will take time and be an uphill fight. It is troubling to hear things like the future is brighter because Mutual of Omaha Bank has joined the industry. That shows that after almost a decade of annual losses in endorsements and secular stagnation we are still looking for easy answers. Rather than thinking about finding the easy way out, think tough, hard, and that it MAY take up to a decade to fully recover. But be thankful Mutual of Omaha Bank is here to help.

  • You have to give my friend Jim Veale a lot of credit for the time and effort he takes in his research as well the statistical data he shares with us all!

    For all purposes Jim is right, however, the rise in home equity in the hands of our seniors is not all due to housing appreciation!

    We have many seniors turning 62 years old that are hitting the statistical factors that have either a lot of equity in their home or own their homes free & clear.

    From a sales standpoint and what we need to focus on is that we have more senior home owners turning 62 years of age daily than anytime other time in history. We also are showing the same statistics in home equity among these seniors.

    This means opportunity is out there, we have an industry and a product line that we can be successful at selling. We also have a product that can do a lot of good for our seniors in need of improving their retirement quality of life!

    John A. Smaldone
    http://www.hanover-financial.com

    • John,

      I did not cover how home appreciation grows. I pointed out that the main driver in reverse mortgages is not home equity but rather home appreciation. The value of the home is how we determine proceeds.

      Home equity is impacted by things other than home value or its appreciation. There is also paying down a mortgage or adding more debt than is paid down; one increased home equity and the other decreases it.

      Yet the statistics cited in the article are much different yet. Home equity for seniors is increased as more senior homeowners turn 62 since most homes being added are not under water. Also net pay downs on total mortgages for the group help as well.

    • John,

      I did not cover how home appreciation grows. I pointed out that the main driver in reverse mortgages is not home equity but rather home appreciation. The value of the home is how we determine proceeds.

      Home equity is impacted by things other than just home value or its appreciation. There is also paying down a mortgage or adding more debt than is paid down; one increases home equity and the other decreases it.

      Yet the statistics cited in the article are much different. Home equity for all seniors 62 and older is increased as more senior homeowners turn 62 since the overall positive home equity being added is generally greater than the combination of 1) negative home equity also being added and 2) the removal of home equity through the death or choice of no longer owning a home of those already over 62 years old. Also the net pay downs on total mortgages for the group help as well, even though seniors are also adding debt.

  • John,

    My original comment lacked sufficient detail on home equity. It needed a little beefing up. So thank you for both of your replies.

    You have a great weekend as well.

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