A new report from Bank of America underscores the potential for reverse mortgages as it found that the majority of older homeowners want to stay right where they are as they age.
Gen X and baby boomers make up 70% of the 84.7 million homeowners in the U.S. Among this group, 60% of Gen X’ers and 76% of baby boomers plan to or have retired in the home they already own, according to the 2022 Homebuyer Insights Report from BofA.
Almost 80% of this group said they saw no reason to move, while the rest said they do not want to move because of the amount of work they put into their home. More than 60% of Gen X and almost 70% of baby boomer homeowners renovated or remodeled the homes they live in now.
These homeowners’ desires are also seated in emotional attachments. About 41% cited the memories they made in their homes as one of the reasons to stay, 38% believe their homes safeguard them against current market conditions, 35% believe their homes provide financial stability against increasing rents, 35% said they have adapted their homes to their lifestyles and 27% said they find a sense of community where they currently live.
Their plans to stay put in retirement will continue to impact inventory as more people want to stay in their homes compared to those wanting to sell them.
“While home prices are holding steady in many parts of the country, demand continues to exceed supply, and there is still room for inventory to catch up before the housing market is in balance,” said Matt Vernon, head of retail lending at Bank of America, in a prepared statement.
Active home listings fell from 1,468,901 units to 732,276 units between July 2016 and September 2022, according to Realtor.com.
In November, HousingWire Lead Analyst Logan Mohtashami wrote about two trends in existing home sales based on National Association of Realtors (NAR) data: Home sales are declining while total inventory data has fallen. Meanwhile, the days on the market grew from 18 to 21 days.
“We saw new listing data decline when rates got to 6.25% the first time. This is not a positive for the housing market,” he said. “A traditional seller is primarily a homebuyer, so not only do we lose the inventory for sale when this happens, but we also lose a buyer.”
The statement from Bank of America says a decade of insufficient homebuilding also worsened low inventory levels, with housing supply growing by only 6.7% from 2010 to 2020.
For Gen X and baby boomers who have not retired yet, the current housing market makes staying in place more attractive than relocating, the report says. If they were to retire today, 32% want to remain in their current home to avoid high home prices and interest rates, 20% want to stay put because of a low mortgage payment or because they have already paid it off and 10% want to sell their home and relocate somewhere with a lower cost of living or leverage the equity they have built in their home.
According to Bank of America Securities, 95% of current mortgage holders benefit from loans with rates of 5% or less. Retirees with a fixed income are also hesitant to sell their homes and rent because of the associated fluctuations in cost. Median rent payments increased by 8.1% year over year in September.
The report says 38% of Gen X and baby boomer homeowners plan to support the next generation by giving them money to buy a home or give them their home to sell, 36% want to pass their homes down to the next generation while 12% want to give them the option to live in a multigenerational space. Meanwhile, 59% are willing to offer advice and support.
Gen X and Baby Boomer homeowners are also planning to use home equity to achieve personal goals like living out their retirement dreams (16%), invest the earnings (12%) or renovate their homes (7%).
Reverse mortgage loans have an occupancy requirement stating that borrowers must remain in the home that is the source of the lien in order to keep their loan in good standing. Failure to certify occupancy could result in a reverse mortgage being accelerated to due-and-payable status.
Former staffers from HUD, FHA and the GSEs weigh in on how to press ahead in this volatile reverse mortgage climate.