These are the 4 factors that will change home values this year

1. DEMOGRAPHICS–

Demographics are the data that describes the composition of a population, such as age, race, gender, income, migration patterns, and population growth. These statistics are an often overlooked but significant factor that affects how real estate is priced and what types of properties are in demand

Urban flight in the wake of COVID-19 lockdowns, closed businesses, widespread civil unrest, riots, and increasing tax burdens in our largest cities. For example, since July 2019 rents are down 10% in Manhattan as former downtown residents move to the surrounding boroughs, to the suburbs,  or out of the state.

2. INTEREST RATES-

Today’s average interest rate on an adjustable-rate HECM range from… [read more]

…2.9% to 3.5% depending on the margins offered by the lender. For a 72-year-old man with a $350,000 home, a 3.125% rate would give him a gross principal limit (that’s the funds available before liens, fees, and set-asides) of $202,300… Before the pandemic and central banks slashing rates that the same individual would only qualify for $180,000 with a 4.125% interest rate. That’s a 12 percent reduction in loan proceeds.

Last Thursday Federal Reserve Chairman Jerome Powell announced a policy shift saying the Fed will focus on ‘average inflation targeting’. in essence, this means the prior target of 2% inflation which would typically trigger a rate hike is being abandoned for a higher inflationary tolerance. This means interest rates are expected to remain low for the foreseeable future- the Dow Jones spiked up 300 points in the hours following this announcement.

3. ECONOMIC PERFORMANCE & OUTLOOK. The US. GDP dropped by over 30% in response to the nationwide shutdown to slow the spread of the coronavirus.  The GDP is not expected to dramatically improve as today marks Day 168 from the original 15 Days to Slow the Spread which was enacted on March 16th.

4. GOVERNMENT INTERVENTION.  Tax credits- stimulus measures. Unemployment may rise when some employers find that some if not all of their forgivable Paycheck Protection Program monies received may be taxable. After 20 interim rule changes to the CARES Act, it’s quite apparent the program is literally evolving before our eyes. The IRS took that position in Notice 2020-32, stating that expenses otherwise deductible in a borrower’s trade or business are not deductible if they result in loan forgiveness under a PPP loan. This could lead to further layoffs for cash-strapped employers who took a PPP loan.

All which leads us to the conclusion that at this very moment, despite the pandemic and economic uncertainty, we are in an ideal lending environment to qualify the greatest possible number of potential homeowners for a reverse mortgage.

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