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The Wild West in the Housing Market

September 1, 2021

Older homeowners are sitting on a GOLDMINE?

It’s not boom or doom when it comes to the housing market. While Americans are getting priced out of the housing market millions of savvy older homeowners are sitting on a goldmine. Not just a motherlode of equity but a potential source of cash flow that could be mined to help temper the impacts of inflation and as a hedge against financial shocks.

Low interest rates and government stimulus are akin to the 19th-century expansion of the railroads that helped create boomtowns. While the property values surged in such an environment history has taught us such ideal conditions are transitory.

Last spring as the Covid-19 emerged began HECM application activity as measured by case number assignments began to surge. While one could argue such an expansion shows more homeowners are seeking to tap into their record home values the data doesn’t support such a conclusion. Case numbers for

HECM-to-HECM refinances account for 43% of all new HECM case numbers recorded in June. Despite the prevalence of refinances, some lenders are seeing an overall increase in reverse mortgages from first-time borrowers.

Mike Bowers with Mutual of Omaha Mortgage in Cincinnati stated that the bulk of their business is from new Boomer borrowers. “We’re getting a steady flow refinance business, but the bulk of our business is in new borrowers”, said Bowers.

NOW IS THE TIME TO ACT!

So, what could dampen the gold rush of home values? An interest rate hike by the Federal Reserve is one. On August 9th Reuters reported two Federal Reserve officials who said that the U.S. economy is growing rapidly and that while the labor market still has room for improvement, inflation is already at a level that could satisfy one leg of a key test for the beginning of interest rate hikes. The Fed estimate of 3.5% annual inflation exceeds the central bank’s inflation target of two percent. Should inflation surge the Fed could find itself painted into a corner to use their primary tool to slow inflation.

Is an interest rate hike imminent? No. But a move toward a serious discussion to do so? Yes. What’s more likely is a tapering of the Fed’s bond purchasing, which was reported last week. The Federal Reserve isn’t the only one showing reluctance.

Potential homebuyers are increasingly choosing to stand on the sidelines and save their cash being unwilling to purchase a home in an artificially inflated market. This certainly won’t push home values down quickly, but it certainly may dampen the growth of home appreciation.

In the meantime, older homeowners may want to cash in on part of their claim and transform some of their home’s value into cold hard cash.

If you want to learn more contact Mike Bowers at mbowers@mutalmortgage.com or 513-680-6168

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