Since we already know that May’s volume levels rebounded a bit in June, it doesn’t feel quite so disheartening to show the headline graph from this month’s Reverse Mortgage Industry Trends report.
HECM Endorsement Trends by Year
Volumes for each month this year have been below 2009 thanks to startlingly low application counts, but now the task before us all is to improve on the 39% decline YTD. No one is expecting a 100,000 loan year anymore, but it’s shocking to realize that 80,000 would represent significant progress given what we’ve seen so far.
So where is the volume coming from next month and for the rest of the year? Last month we looked at HECM Purchase, which has been growing steadily (up almost70% last month vs. 2009), but started from nothing in late 2008 so we need more than just impressive growth figures (last eight months = 910 total loans). We continue to believe that the potential exists for 10,000 or more loans annually from this program, so we thought it would make sense to share that high level analysis with you here.
There are a few key steps in this quick analysis, and we’ll be the first to admit this is back of the envelope rather than something we can prove in our normal style from hard data. That being said, the numbers get interesting very quickly.
- There are 23.2 million senior homeowner households in the US as of 2008
- According to a 1991 study by the Real Estate Center at Texas A&M University, only 7.4 percent of seniors moved in a given year, which we’ve adjusted down to 6% due to their lower survey age
- Statistics range from 60-80% of seniors owning their homes outright, so we took the more conservative assumption that only 20% of seniors would use mortgage financing to purchase a home
That leaves some 280,000 seniors purchasing homes annually with mortgage financing, so HECM’s opportunity is to capture some portion of that. Whether you believe that HECM can capture 5% or 50%, we still have a large market to address. Of course, that also doesn’t consider seniors who otherwise would not be able to move or buy a house with traditional mortgage financing, but could through a HECM Purchase.
It’s not the only answer to today’s tough market conditions, but it certainly pencils as part of a larger solution.
Click on the image below to view the full Industry Trends report for this month.