Tag Archives: baby boomers

How Long Do Most Families Stay in Their Home?

 

How Long Do Most Families Stay in Their Home? | MyKCM

The National Association of Realtors (NAR) keeps historical data on many aspects of homeownership. One of the data points that has changed dramatically is the median tenure of a family in a home, meaning how long a family stays in a home prior to moving. As the graph below shows, for over twenty years (1985-2008), the median tenure averaged exactly six years. However, since 2008, that average is almost nine years – an increase of almost 50%.

How Long Do Most Families Stay in Their Home? | MyKCM

Why the dramatic increase?

The reasons for this change are plentiful!

The fall in home prices during the housing crisis left many homeowners in a negative equity situation (where their home was worth less than the mortgage on the property). Also, the uncertainty of the economy made some homeowners much more fiscally conservative about making a move.

With home prices rising dramatically over the last several years, 93.9% of homes with a mortgage are now in a positive equity situation with 78.8% of them having at least 20% equity, according to CoreLogic.

With the economy coming back and wages starting to increase, many homeowners are in a much better financial situation than they were just a few short years ago.

One other reason for the increase was brought to light by NAR in their 2017 Home Buyer and Seller Generational Trends Report. According to the report,

Sellers 36 years and younger stayed in their home for six years…”

These homeowners who are either looking for more space to accommodate their growing families or for better school districts are more likely to move more often (compared to 10 years for typical sellers in 2016). The homeownership rate among young families, however, has still not caught up to previous generations, resulting in the jump we have seen in median tenure!

What does this mean for housing?

Many believe that a large portion of homeowners are not in a house that is best for their current family circumstance; They could be baby boomers living in an empty, four-bedroom colonial, or a millennial couple living in a one-bedroom condo planning to start a family.

These homeowners are ready to make a move, and since a lack of housing inventory is still a major challenge in the current housing market, this could be great news.

How Does the Reverse Mortgage (HECM) Line of Credit Work?

 

One of the most powerful features of the Home Equity Conversion Mortgage is that the unused portion of the Line of Credit has a built in guaranteed growth factor. So that once the line is established, it will continue to grow regardless of the home’s value. Some have “asked how is this possible?” And the answer is really pretty simple; it was designed into the program in 1988 and has never changed.

Case Study

  • Pierce and Linda (Ages 62) have a $400,000 home
  • They have an existing Mortgage Balance of $100,000 that carries a monthly payment that they would like to get rid of
  • So they establish a HECM Reverse Mortgage
  • The PRINCIPAL LIMIT (PL) is the amount of money that is made available to them based on (1) the Age of the Youngest Borrower (2) The Value of the Home (up to $625,500) and (3) The current interest rates.
  • Pierce and Linda have $200,000 that is made available to them
  • The HECM must be a first mortgage, so $100,000 is taken out to pay off their existing mortgage and eliminate their mandatory monthly payment. Financed closing costs for this loan are $5,000.
  • So Pierce and Linda’s Initial OUTSTANDING LOAN BALANCE (OB) is $105,000

 

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So their Initial LINE OF CREDIT (LOC) of $95,000 is equal to the PRINCIPAL LIMITOUTSTANDING BALANCE

THE BASIC FORMULA
PL – OB = LOC


The First Year

  • The PRINCIPAL LIMIT of the HECM is ALWAYS Growing at the Note Rate: Interest Rate + Lender’s Margin + HUD MIP

(**Notice** This Example just shows the Lender’s Margin + HUD MIP,
because it’s the MINIMUM Growth Factor! Today’s actual growth rate is around 6.1%)

  • So you will notice below that the Principal Limit grew from $200,000 to $210,000 (or by 5%)
  • The OUTSTANDING BALANCE is also ALWAYS Growing at the Note Rate: Interest Rate + Lender’s Margin + HUD MIP
  • Notice it grew from $105,000 to $110,250 (or by 5%)
  • The difference between the Principal Limit and the Outstanding Balance = 1st Years Line of Credit of $99,750

The Subsequent Years:

  • Notice below that the Principal Limit and the Outstanding Balance are Always Growing in a HECM
  • If a voluntary mortgage payment is made, it will reduce the Outstanding Balance, but the Principal Limit will always be growing at the Note Rate
  • Notice below that Line of Credit therefore is growing as well, regardless of the underlying home’s value, the client’s income, assets or credit worthiness

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So there you have it. A very simple and powerful tool called the HECM Line of Credit. One tool capable of solving so many retirement income challenges.

Don’t Forget the Home Appreciation

Many advisors forget that the underlying asset is still appreciating. Below we show a 3% and 4% average appreciation for illustration sake; actual appreciation will naturally fluctuate. But the point is that the home itself is an appreciating asset. So in this example, one would simply need to subtract the outstanding balance from the potential future home value to determine what passes on to the estate. **Note** In certain scenarios, the home’s equity may be intentionally depleted in order to increase or preserve the overall value of the estate (which could mean preserving Equities from premature depletion, etc).

400k_home_appreciation

Too Good to Be True?

So many have questioned if this is this really true. In August of 2016, AARP Public Policy Institute made a recommendation to congressional policy makers that the HECM Line of Credit (which has functioned the same waysince 1988) was too good and the HUD should consider eliminating the growth feature of the program. I don’t know what will come of this suggestion in the future, but for now, establishing a Standby HECM Line of Credit could be a tremendous financial planning strategy.

 

Let’s talk Stats Boomers… Ready to Retire?

Thanks for this

 

Are your retirement plans in place, locked down and solid?  Or do you or maybe your parents fall into the overwhelming statistics below?

  • Baby Boomers are turning 62 at a rate of 10,000 a day.
  • Senior home equity is at an all time high.
  • They live longer, are active, carry debt, and have equity.
  • 25,000,000 households with Americans over 65.
  • 85+ is the fastest growing demographic in America.
  • Federal Reserve estimates 50% of Boomers with no retirement savings.
  • $49,800 average savings of those who have saved.
  • $51,000 is average annual cost of assisted living.
  • 80% of seniors have substantial equity in their homes.
  • 81% of seniors plan to remain in their homes as long as possible
  • 43% of current HECM seniors report that without their Reverse Mortage, they could not remain in their home.
  • 23% married social security beneficiaries  receive 90% of their income from SSI.
  • 43% Single social security beneficiaries receive over 90% of their income from SSI.
  • 30% gap between social security and desired monthly income
  • Inflationary pressures on Fixed Income.
  • Health care costs continue to rise.
  • ZERO alternative sources of additional monthly cash for most seniors other than home equity.

Top 3 Things Second-Wave Baby Boomers Look for in a Home

Top 3 Things Second-Wave Baby Boomers Look for in a Home | MyKCM

According to data from the U.S Census bureau, there are approximately 76.4 million baby boomers living in the United States today. Contrary to what many think, there are very different segments within this generation, and one piece that sets them apart are their housing needs.

John McManus, editorial director of Hanley Wood’s Residential Group says his company “is focusing on the preferences of the younger half, or second-wave baby boomers, as they exhibit different needs than the older boomers.”

What are ‘second-wave baby boomers’ looking for?

McManus says, “They are seeking a fun, dynamic lifestyle with a home that can also adjust to their changing needs in the future. Living space should either include accessibility features, such as doorway space, lower shelves, and nonslip surfaces, or be easily adjustable when the time comes.

In a homebuyer study performed by The Farnsworth Group, the participants revealed their reasons for purchasing a new home. The top three factors that influence their purchase include area/location (50.2%), price/affordability (37.4%), and the layout of the home (19%) (as shown in the graph below).

Top 3 Things Second-Wave Baby Boomers Look for in a Home | MyKCM

The report also found that when buying a new home, there were other concerns like quality of construction (9%), a safer neighborhood (8.4%), better floor plans (8.25%). The most important rooms or areas are the kitchen (82.8%), master bedroom (59.2%), and great room (36%).

Technology also plays an important role! Second-wave baby boomers prefer wireless security systems (7.1%), lighting that senses and adapts to them (6.3%) and integrated home technology, including “smart” thermostats and lighting controlled by a smartphone (6.2%).

Grey Matter Research and Consulting points to a sense of community as a major factor in wanting to purchase:

The first impressions are important when entering a new community, as is feeling welcome in the community. Amenities such as clubhouses, pools, and walking trails featured prominently in the decision to purchase in a community. Location was key, as residents want their new homes to be near shopping, dining, medical services and entertainment.

Bottom Line

If you are one of the many ‘second-wave’ baby boomers who is starting to feel like their current homes no longer fit their needs, take advantage of the low inventory of existing homes in today’s market by selling your current home and moving on to one that truly fits your new lifestyle.