Looking at the state of the current housing market from the perspective of property owners can bring some unique insights to the forefront, and that can include thoughts and perspectives about reverse mortgages. The attitudes and actions of seniors currently making decisions related to bolstering a fixed income could send some waves through the housing market, particularly as certain seniors may explore options to either hold onto their current home or to downsize.
This is according to Joseph Edgar, CEO of companies TenantCloud and Rentler which aim to provide landlords with services to maximize rental property income.
“The reverse mortgage has been around for a while,” Edgar says. “Reverse mortgages allow homeowners to sell their property now but still continue to live in them for the following years. Benefits are that a retired couple, for example, could use the equity in their home and receive, instead of pay, mortgage payments.”
While the specifics of how he describes a reverse mortgage mechanism may be a little off the mark, Edgar points out that the overall control that seniors have over the current housing market could interact with reverse mortgages in ways that it has not yet previously.
“In essence, this means equity is less of a focus, and simply maintaining a steady income with an affordable place to live is becoming a priority,” he says. “This is especially true for the many Americans 68 years and older who control 57% of the real estate in the United States. As these older Baby Boomers move into a phase of their lives where steady income becomes the focus, we see this trend manifest in high prices for rental properties and the flooding of cash into real estate investment funds.”
The figure of Americans 68 and older controlling 57% of American real estate is sourced from a story published in the New York Times this past July, which described the inclination for the baby boomer generation to age in place as being a disruptive influence on the homeownership trends of the succeeding Generation X and Millennial cohorts.
‘With commercial properties, the ratio of income to value is known as the capitalization rate,” Edgar says. “Cap rates have been falling sharply in the last couple of years, and this is further reflective of people investing funds and being more willing to take steady income over value growth. As properties sell for higher amounts than their replacement costs, it becomes evident that the popular practice now is to snatch up as many income-producing properties as possible; and the current market is well-financed to do just that.”
Over the next five years, the predominant reality of older Americans remaining the majority of landlords across the country is unlikely to change anytime soon, Edgar says. Read the column at Forbes.