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The Retiree Effect on Homeownership

As older Americans enter into retirement age, they are pressed with the question of staying in their home, borrowing against their home, or opting out of homeownership for renting.

Freddie Mac’s inaugural 55+ Survey  [1]examined responses from nearly 6,000 homeowners and renters to determine their views on housing preferences, retirement plans, and financial concerns of Baby Boomers and older homeowners.

The report found that 76 percent homeowners born before 1961 are confident they will have a financially comfortable retirement. Every demographic displayed confidence in their retirement: African-Americans (77 percent), Hispanics (64 percent), Asians (80 percent), homeowners who are currently working (74 percent), as well as homeowners earning less than $30,000 (55 percent).

 

In addition, 59 percent of homeowners were “very satisfied” with their communities, Freddie Mac reported. Another 64 percent are satisfied with their current home and 54 percent with their quality of life.

A majority of those surveyed indicated that homeownership makes financial sense for most Americans, the survey results showed. For people who are either married with children or between 35-49 years of age, older homeowners said that homeownership makes financial sense. Eighty-seven percent noted that homeownership makes sense for people over 55, married couples without children (85 percent), single people with children (79 percent), and single people without children (53 percent).

“The overwhelming message of the Freddie Mac 55+ Survey is that homeownership works. The American Dream delivered greater financial stability and satisfaction to the homeowners who lived through every recession since the 1970s, including the housing crisis of 2008,” said Dave Lowman, EVP of Single-Family Business at Freddie Mac.

Since most older homeowners are satisfied with their current home, this raises questions surrounding what plan of action they plan to take to continue residing there. With products like home equity lines of credit on the market (HELOCs) and reverse mortgages, retirees have options—if they can afford them.

REVERSE-MORTGAGE

As a whole, the total balance of write-offs year-to-date in March for first mortgages, home equity lines of credit (HELOCs), and home equity loans is $9.5 billion in the first quarter of 2016, a nine-year low for the first quarter and a year-over-year drop of 22.7 percent, according to data from the April 2016 Equifax National Consumer Credit Trends Report.

Outstanding HELOC loans totaled 11.0 million in March, down 3.2 percent, while the total balances outstanding on HELOCs  fell 3.9 percent in that same time to $489.9 billion. Equifax reported that The utilization rate on HELOCs has fallen below 50 percent for the first time since 2008.

On the reverse mortgage front, data from ReverseMortgages.com and HUD showed that as of 2015, there are 56,363 reverse mortgages in the U.S. These borrowers are receiving $9.3 billion in financing, an $168,400 average principal limit, and a 3.38 percent average interest rate.

Freddie Mac also found that while many over the age of 55 would prefer to age in their current home, nearly 40 percent said they would prefer to move at least one more time, and 70 percent of those said they are likely to purchase their next home. Lowman noted that this “will create significant opportunities and challenges for the industry for years to come.”

“The decisions the nation’s Baby Boomers and other older homeowners make will have an enormous impact on the demand for housing and new mortgage credit for the foreseeable future,” Lowman said. “Whether they buy new homes or decide to refinance and renovate their current ones, the size of this generation and the fact that they hold close to two-thirds, approximately $8 trillion, of the nation’s home equity makes it very important that we watch what they do.

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