Reverse mortgages & over–55 housing

by Peter G. Miller
November 17th, 2010

There is a special category of real estate reserved for those aged-55 and above, what is sometimes called the “active adult” market segment. Alas, this part of the real estate marketplace seems to have withered far more than anyone might expect.

“While we have anecdotal information that some local 55+ markets are beginning to rebound, the third-quarter data show that national conditions for this sector have not yet turned the corner,” says David Crowe, chief economist with the National Association of Home Builders. “Real improvement won’t happen until we have better employment numbers, and consumers who are more confident of keeping their jobs. Those consumers will buy the homes of the 55+ age cohort, so that the mature buyers will be able to move to more appropriate housing.”

Well, goodness, what sector of the housing market has turned the corner?

Builder Confidence

The home builders have a 55+ single-family housing market index designed to show builder confidence in the active adult marketplace. A score of 50 or above is positive, currently the index is at 15 for present sales, 24 for expected and just 11 for prospective sales.

In a counter-intuitive way, the bad news for home builders may actually be good news for senior citizens.

If confidence in the over-55 market is lousy, then it follows that such properties must be available for purchase or rent at better prices and terms than we saw in the recent past.

Given that one can use a reverse mortgage to purchase real estate, and since over-55 housing is real estate, it follows that a new and interesting market may actually be evolving.

The financing angle is fairly clear: In the past week Freddie Mac reported the lowest mortgage interest levels ever recorded — just 4.17 percent for a 30-year fixed-rate loan. Combine historically-low rates with flailing home prices and the news is terrific for those with credit, cash and an interest in buying.

Home Prices

The trend with home prices has been abundantly clear. While prices have stabilized in some markets and actually risen in a few, the general trend has been down followed by more down.

For seniors who have saved and have equity, the real estate market may be attractive in the sense that there are many homes available, prices are generally down, and interest costs are through the floor. The ability to finance and refinance with a reverse mortgage, especially the new HECM Saver from HUD, makes this a unique market.

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