The amount of housing wealth held by U.S. senior homeowners continues to grow at a billion-dollar clip, propelling the potential opportunity for reverse mortgages to nearly $6 trillion nationwide, according to a recent analysis of home equity among Americans age 62 and older.
With a $135.2 billion gain during the second quarter of 2016, the aggregate value of senior home equity now stands at $5.9 trillion, according to the latest Reverse Mortgage Market Index (RMMI) published this week by the National Reverse Mortgage Lenders Association.
With the second quarter of 2016 in the books, the RMMI has now reached a new peak reading of 212.45, up from 207.60 during the previous quarter, and an 8.7% year-over-year increase.
Source: NRMLA/RiskSpan (click image to enlarge)
Compiled in conjunction with RiskSpan, the RMMI provides a quarterly index level for the aggregate amount of home equity held by senior households age 62 and older.
First published in the first quarter of 2000, when senior home equity totaled $2.38 trillion nationwide, the RMMI was benchmarked at an index level of 85.47. After reaching a peak reading of 182.25 in the first quarter of 2006, the RMMI declined through Q1 2009, when senior home equity plummeted to a trough of $3.48 trillion and the index dropped to 125.08.
Since then, the housing market’s recovery and the growing population of senior homeowners have contributed to an upward trajectory for the RMMI, according to NRMLA, which notes that during the second quarter of 2016 senior home values have reached $7.4 trillion, while senior-held mortgage debt grew by $10.75 billion to a total of $1.48 trillion.
“Healthy improvements in the housing sector are creating more financial options for senior homeowners who want to stay in their home as long as possible but who may need to make structural modifications or coordinate care services to manage living there safely and independently,” said NRMLA President and CEO Peter Bell.
Rising home equity levels arrive at a time when homes among the age-62 and older population are likely in need of upgrades to support aging inhabitants, according to a May 2016 report from the Bipartisan Policy Center’s Senior Health and Housing Task Force.
Furthermore, rising costs for in-home care services also pose significant challenges to enabling senior homeowners to age in place, particularly for low- and middle-income households. For example, the national median cost for home health aide services run $41,600 per year, according to the Task Force.
Considering these expenses, the Task Force suggested that home equity, accessed through a reverse mortgage, can offer homeowners the cash flow needed to cover these necessary costs.
“Incorporating home equity into a retirement funding stream with a reverse mortgage is not a new idea, but important new protections for borrowers have regenerated interest in this strategy, which can help more seniors afford the tools to live safely in their homes for a longer period of time,” Bell said.
The RMMI for the first quarter of 2016 was revised from its original reading of 209.12 to an updated index level of 207.60, NRMLA noted, primarily because of the updated Federal Reserve total housing value in the third quarter release.
Written by Jason Oliva