Americans are broke. Will reverse mortgages get a second look?

Welcome back to the Industry Leader Update. On last week’s show, we looked at how older Americans are being crushed by higher homeowners insurance premiums and increasingly being rejected for credit loan applications. One viewer commented sharing his real-life experience. “I bought a home in Fort Myers Florida one year ago and the insurance was $1500. One year later it is $3,000 and my insurance broker said they’re sticking with Insurance Florida but this new year‘s renewal will be at $4500 so in two years it will have tripled, I own the home out right so I’m not required to carry insurance however the large number of hurricanes hitting Florida in recent years forces me to have insurance. HOA went up, so did taxes and utilities, and club membership.”

This story is being played countless times across the country. It then should come as no surprise that the majority of Americans are essentially broke. Not merely because of a lack of planning or savings but because of the spiraling costs of our day-to-day necessities such as insurance, prescription medication copays, or a mortgage payment.

PR Newswire reports that…

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69% of urban dwellers are living paycheck to paycheck. The findings come from Lending Club Bank’s 22nd edition of its New Reality Check: The Paycheck-to-Paycheck research series. The study reveals that Americans’ financial woes are often localized. Ironically, urban residents and even those with the highest slurries are more prone to feel the pain of inflation. Overall, sixty-one percent of consumers overall were living paycheck to paycheck in April 2023. What’s even more remarkable is the report found that while income is a major factor, where one lives appears to be nearly as important in determining whether a consumer is living paycheck to paycheck.

The prevalence of those living paycheck to paycheck is common among urban dwellers in all regions of the U.S. with the exception of the South including Alabama, Florida, Kentucky, Louisiana, Mississippi, and Tennessee to name a few.

So what are our takeaways? First, many of these consumers are likely to end up house-rich and cash poor by the time they reach their sixties. Second, it’s not only workers who are living paycheck to paycheck. Many older Americans are living from one Social Security and/or retirement distribution to the next. Third, the largest concentration of homeowners with the strongest motivation to consider a reverse mortgage will probably be found in or near urban centers. Fourth- urban populations are more likely to accept and use credit and may be less resistant to a loan such as a reverse mortgage. And fifth, 82@ of respondents in urban areas report having outstanding credit card balances averaging 57% of their available savings.

In conclusion, older homeowners in urban areas are likely more impacted by a high cost of living and debt service and as such may be less resistant to the idea of tapping into a portion of their home’s value to relieve their strained cash flow.

Resources:

69% of Americans in Urban Areas are Living Paycheck to Paycheck

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