How inflation could be a net benefit for reverse mortgages
The economic pressures caused by inflation do not usually come with many potential upsides, but for the reverse mortgage industry, there may be an opportunity to find itself in a difficult economic environment for those offering reverse mortgages. home equity conversion (HECM) and other capital release products. .
That’s according to a presentation made by the leaders of Reverse Market Insight (RMI) – Chairman John Lunde and Director of Client Relations Jon McCue – at the Eastern Regional Meeting of the National Reverse Mortgage Lenders Association ( NRMLA) earlier this month in Baltimore, Maryland.
Additionally, while the reverse mortgage industry would do well to continue to focus on bringing new customers into the fold as the HECM to HECM (H2H) refinance boom appears to be over, the addressable market is only grow.
Inflation as a tailwind, demographics remain favorable
Data shared by the US Census Bureau indicates that there is still a favorable demographic environment for seniors who reach 62 (the age eligible for a HECM) and 55 (the age of eligibility for several exclusive reverse mortgages ).
“Each of these bars [represents] More than 4 million people,” Lunde said, referring to a graph illustrating the data. “So we have a tremendous opportunity and we have a tremendous tailwind in our favor for demographics. This has always been true for this product, and it continues to be true. You can see that we don’t see any dips or declines from this perspective.
Of course, there is one main economic factor influencing many financial conversations right now, and that is the level of inflation the country is experiencing, which has reached its highest level in 40 years. Naturally, the negative impacts are widely discussed, but it could have positive impacts on the reverse mortgage industry, says Lunde.
“Inflation is a recent topic, and while it’s having quite a few negative impacts in many ways, in this particular industry, it’s a tailwind, I would say,” Lunde says. “One, a lot of the inflation has been house price increases. Obviously that creates additional opportunities and potential for the reverse mortgage product. [examining their] financial planning that assumed maybe 2% inflation.
Those assumptions about what inflation might look like over the next few years had to be adjusted based on current activity in the economy, Lunde says.
“We’re resetting those expectations quite dramatically,” he says. “So thinking about how people experience the pinch, the levels [of inflation] that we are at will to argue convincingly enough that they [potentially] consider new things or things they might not have considered before.
All of these factors combine into potential opportunities, especially when it comes to finding new clients for reverse mortgages, says Lunde.
People are more likely to feel inflationary pressures in daily living costs, which have risen dramatically, McCue says. Over the past year, the cost of groceries has increased by 11.9%, while the cost of gasoline has increased by almost 50% over the same period. Utility costs also increased, with electricity up 12% and natural gas up 30.2% over the same period.
“If you are on a fixed income, [then you may be] trying to decide between paying for air conditioning in the summer or heating in the winter, or groceries,” says McCue. “Some of these people literally had to make these decisions.”
Property taxes have also seen an increase in response to house price appreciation, and for those who are unable to lock in previous property tax rates or who live in a state with property taxes based on Assessing these costs can have a serious impact on the financial stability of older Americans, McCue says. Some people have been unable to afford their home expenses for years, especially in high-value real estate markets such as San Francisco or Seattle, he explains.
“I live in Texas,” McCue says. “You know that gel you’ve probably heard of? It’s pushed [the cost of] Home Insurance. There are things like wildfires and hurricanes, and all of that leads to an increase in home insurance. And then, if you have to do repairs on your house, if you’ve been living in a house for that long, repairs are inevitable.
These associated costs are also increasing, as ongoing difficulties with supply chains have led to increased material costs in addition to other pressures retirees may feel. These other factors may also contribute to more people considering other potential financial tactics in retirement, including reverse mortgages, McCue says.
“I’ve spoken to a lot of loan officers over the past couple of days, I hear about people losing contracts,” McCue says. “I feel for you guys, but keep in mind that’s a very small number we’re talking about. There are so many more people out there. One of the things to keep in mind is that even people who once thought they were financially secure now may not feel so.