This ratio is determined by dividing a county’s median home listing price by the area’s median household income. Many markets have seen this ratio soar by thirty or forty percent or more since the pandemic. For example, in the Ada County Boise Idaho market, the median household income is $73,324 while the median home listing price is $598,475. This means the median home price is 8.16 times the local median income. A ratio that’s 54% higher than it was in May 2019. The areas shaded in blue or dark blue on this SnapForce CRM map have higher price-to-earnings ratios. Metros such as Miami Florida, Salt Lake City, Utah, and Austin Texas have seen their median home listing prices to median income ratios skyrocket in the wake of the pandemic and the Federal Reserve’s slashing of interest rates.
Consequently, older homeowners are directly impacted in such markets where housing affordability has deteriorated finding few willing and able homebuyers able to purchase their home. More specifically, these homeowners may prefer to postpone or shelve a relocation to downsize or move near their family being somewhat marooned in a home that likely has substantial accumulated equity yet no practical means of accessing it outside of finding a willing buyer or getting a reverse mortgage.
Those homeowners who may find a buyer may be reluctant to sell their home knowing that they would have to purchase another home at an artificially-inflated price. The exception to this scenario would be those who sell in a high-value market and relocate to a city with lower median home prices. In such cases, the HECM-for-Purchase is a force multiplier in both purchasing power and cash flow management.
In a frozen real estate market, seniors may initially hesitate to explore financial options such as reverse mortgages. However, the loan offers numerous benefits, irrespective of market conditions which allow borrowers to tap into a portion of their home’s value without having to sell and relocate. While today’s interest rates are not ideal most home values remain well above their 2019 levels.
As with any financial decision, it is essential to consult with trusted professionals and evaluate individual circumstances before getting a reverse mortgage.
| Real Estate Insights by Snapforce |
5 Comments
Shannon,
Hope all is well with you, long time no talk! This was a good presentation, seniors who want to downsize and have a large amount of equity in their homes but don’t know whether to put the Cart before the Horse. What I mean by that is a particular senior couple in my scenario don’t want to sell their Home, then gamble on finding their ideal smaller Home, then find themselves with nowhere to go.
Solution, get a reverse mortgage on their existing Home, take out a fixed rate loan so all their equity is available to them, set the funds aside, then go shopping, when they find their ideal lifetime place to remain in, take out a HECM for purchase on the new Home.
Yes, I know what you are going to say, the closing costs will be enormous to absorb on both Homes in such a short period of time, but this still may be the safest way to avoid the gamble of having to rush and sell, possibly finding themselves without a place to live for a while ETC. Just a thought to ponder over!
John
John,
I think I remember someone with a last name spelled close to your last name commenting with some frequency on RMD, HW, and the Reverse Review about a decade or so ago. If that is not you, my apologies.
Starting on September 30, 2013, HUD will not permit a full draw at closing on any HECM that does not have at least 90% mandatory obligations, no matter what kind of HECM it is. That is very old stuff. A lot of us were not in the industry before 1/1/2014. Without at least 50% of the proceeds required to paying mandatory obligations at closing, the starting UPB cannot exceed 60% the PL (Principal Limit).
That is not true with proprietary reverse mortgages (or as they were once called, jumbo) but the product is much riskier and normally has lower proceeds available than the PL on a HECM.
Your idea worked just fine at a different time.
You are right,
I should have said an adjustable rate mortgage, not a fixed. Yes,I am the same John Smaldone, should have known what you spelled out and I appreciate you that!
Thanks again Cynic,
John
With HECM market equilibrium demand near its lowest level in two decades, one would like to see acceptance of HECMs, not just increased acceptance of HECMs.
Some are declaring demand for HECMs is at all-time highs but market equilibrium was at a 26,700 annual endorsement demand rate during the third quarter of fiscal year 2023. In fiscal year 2009 the market equilibrium demand rate was over 114,000. Telephone calls about HECMs are not demand but MAY indicate what market equilibrium demand is (but even that is iffy).
Real demand is not activity but what brings the HECM market into equilibrium based on supply. Available supply may be unlimited but legitimate supply is not. In fact, it is dismal right now.
Realist, really?
Demand will always reach its maximum based on the level of supply available for a product when the economy is at equilibrium. Your comment is a little confusing but I guess your thought is that demand is at its current peak based on the reverse mortgages that are available in the market. On that point, my econ profs would agree.