HUD’s Office of the Inspector General (OIG) pointed to a handful of continuing issues that undermine the FHA insurance fund. One of them, not surprisingly, deals with violations of HUD’s HECM occupancy requirements…
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If there’s one word that comes to mind when describing home prices today it’s inflated. Today’s inflated home values are primarily a product of two things: years of cheap money (low interest rates), and a long-term shortage of housing inventory.
Reflecting on the current state of the housing market many may say, “something has to give”, meaning this cannot possibly last forever. They’re right.
Not a nasty person or a ‘mean’ housing market, but a return to the historic norm. Let’s take home appreciation. Just like gravity eventually pulls an object back to earth, economic forces eventually exert enough resistance to pull back home appreciation rates back to their historical mean.
The reversion of home price appreciation is the natural result of a highly speculative, abnormal, and highly-inflated market. It’s also extremely painful for those who may have lost the opportunity to restructure their debt while tapping into some of their home’s value.
The impact of repeated interest rate hikes would generally be offset if home values miraculously continued to appreciate by 15-20% a year. The fact is such daydreams never materialize; especially not when potential homebuyers have fewer dollars to invest in a home thanks to historically-high inflation that shrinks their dollar each day.
Despite a historically-established record of housing booms, busts, or deflations, many homeowners choose instead to believe the myth that home values will never fall. Of course, they will and do. The question is what happens to those who don’t secure some of their home’s value only to see it drop by ten, fifteen, or twenty percent?
For those who are not cash strapped despite the spike in the cost of living the answer is ‘very little’. However, for many, the regret and anguish will feel as real as the bricks in their home. They missed the opportunity to leverage an inflated asset (their home) to offset the inflation of the costs of goods and services during retirement. That’s when a reversion to the mean in home values can feel quite nasty.
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Good news. Few economists, if any, believe that the housing market will crash. The bad news most experts believed the same in the months and years leading up to the 2008 housing market crash.
If You Get This Message About Your Mortgage, Contact Authorities, FBI Says
Another lender is offering a reverse mortgage for Generation X
The appeal and eligibility of reverse mortgages for older homeowners are largely driven by home values and interest rates. And there are signs that the housing market may be beginning to falter. First new home sales rose in June and July but that’s only the second increase in the last six months. Second, new home sales have steadily fallen since March with only a modest increase in July. Third, housing inventory began steadily increasing this spring, a trend that’s expected to continue now that the eviction bans have ended. Keep in mind evictions and sales of rental properties will lag several months as landlords step through the arduous eviction process so don’t expect an immediate surge for several months.
Perhaps you’ve noticed that housing prices are blowing up despite an uncertain economy and what appears to be a building second wave of COVID-19 infections. At this point, most of us are ready to accept some good news. However, there are some indicators that we are approaching a housing crisis while certainly, we have solid market indicators of improvement. As one Polish poet put it, “the truth usually is in the middle. Most often without a tombstone. Let’s dive in.
First, we will see a spike in evictions- not because landlords are booting out non-paying tenants, but because those property owners cannot pay the mortgage to the bank when they are no longer receiving rent payments. While this does not directly impact senior homeowners it will contribute toward increasing housing inventory which has a direct impact on housing prices. Next, let’s look at the state of the market comparing Black Knight’s July and August Mortgage Monitor reports.
Mortgage forbearances are being extended. How will home values and borrowers be impacted once they end?
It’s compassionate and pragmatic. Mortgage forbearance allows borrowers to suspend or reduce their monthly payments, however, delinquent payments must be repaid. The good news is homeowners with a federally or GSE-backed mortgage (FHA, VA, USDA, Fannie & Freddie) are protected from a lender initiating foreclosure until December 31st of this year thanks to the CARES Act. FHA-insured Home Equity Conversion Mortgage borrowers are protected under this provision.
Private reverse mortgages are filling the HECM gap. Australia opens the doors for reverse mortgages. Are we entering another housing bubble?
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