Just last week here on the AgingOptions blog, we wrote about some bad news for home sellers, and good news for home buyers, in this article recently printed in the Seattle Times. “As sales plunge,” read the headline, “King County home inventory has biggest jump on record.” Now as we’ve dug more deeply into this situation, we’ve discovered that the housing slowdown is not just here in Western Washington but across the nation.
Once-Hot Markets See a Slump
Besides the Seattle Times story, there was this article published last week in the Puget Sound Business Journal. “Dark clouds gather over the U.S. housing market,” declared the article, which was reprinted from the Financial Times. The gist of the story was simple: although the U.S. economy is booming, housing is hitting a slump. “Nationwide, sales and building permits are down,” the Business Journal reports. “Several once soaring markets, including New York City, the San Francisco area, and Denver [and, we would add, Seattle], have been softening. Construction activity has been slowing, too, which is a concern given the disproportionate role that home building plays in US economic growth.”
These two articles reinforce the point that, for sellers and buyers alike, this increase in the number of homes for sale signals a return to a more deliberate, less frenzied home-buying process. But as we said last week, this shift in housing market conditions has an immediate impact on those considering a reverse mortgage. If that’s you, the timing of your decision just became more urgent.
Buyers Can Take a Breath
As the Times real estate reporter Mike Rosenberg wrote, “The better news for homebuyers in King County keeps coming: Inventory is way up. Sales are way down. And prices have stopped skyrocketing.” This market slowdown “has allowed weary would-be buyers to take a breath and avoid some of the hurdles that were standard in recent years when sellers could call all the shots” – hurdles such as tight bidding deadlines and the need to skip basic inspections in order for their bids to be accepted. According to the Times, this market slowdown has been brewing for the past six months and seems to be deepening: Seattle-area single-family home inventory in September alone was 68 percent above the same month one year ago.
But as inventory of available homes is rising, so are interest rates. The Times article gave a surprising example: “Due to rising interest rates,” said Rosenberg, “someone who bought a $700,000 house a year ago is paying the same monthly mortgage bill as someone who pays $640,000 for a house today.” Interest rates, experts report, are now at a 7-year high.
A Market Shakeout? Or Merely a Cooling-Off Period?
Some economists are warning of a housing market shakeout in the making. “If the fall we are now seeing at the top of the market spreads, the impact could be quite significant,” says the Puget Sound Business Journal. “The problems of debt in the US housing market are still very much alive and well.” If housing prices were to drop dramatically, say 20 percent, the total loss in U.S. home equity would amount to about $600 billion.
Other industry observers are much less pessimistic. Just a few months ago the Home Buying Institute published its 2019 predictions for the housing market. They projected four trends: an increase in building of new homes, rising interest rates, rising prices in most markets, and conditions in most markets that favor sellers more than buyers. But the Institute acknowledges that no one knows for certain. “These predictions are the equivalent of an educated guess,” they state. “No one can predict future real estate trends with complete accuracy.”
How do Rising Rates and Declining Values Affect Reverse Mortgage Clients?
Where does all this leave you, especially if you are neither a buyer nor a seller? What if you’re a qualified homeowner considering a home equity conversion mortgage (HECM), better known as a reverse mortgage? How does this shift in the local housing market combined with rising interest rates affect you? Reverse mortgage expert Ted Butler tells AgingOptions that these market changes make it imperative that seniors contemplating an HECM act quickly.
“The housing market is shifting, just as we have seen in other parts of the country,” Ted states. Here in the Puget Sound area, home values may be reaching their peak and starting to level off. That means, if homeowners are at all interested in preserving some of the tremendous gain in value they have seen the past 10 years, there may not be a better time to lock in a reverse mortgage.” When lenders decide how much you can borrow, the appraised value of your home is one critical factor: as the market softens and the value of your house goes down, so does your borrowing power. Higher interest rates have the same effect, limiting how much you can borrow. “If you have been thinking about when might be the time to apply,” says Ted Butler, “that time is now.”
A reverse mortgage isn’t right for everyone, but it could be a terrific resource for you, says Rajiv Nagaich of AgingOptions. The reverse mortgage line of credit is “a powerful tool for retirees,” he states. “Not only do you have tremendous borrowing power to help give you financial security as you age, but with a reverse mortgage your line of credit grows over time. And except for taxes, insurance and regular maintenance, you won’t have to make a house payment again – and you won’t owe a penny on the loan until you sell the house or pass away.” Remember, though, that choosing a reverse mortgage is a major financial decision, and you need solid, objective advice. If you’ll contact us here at AgingOptions, we’ll refer you to a trusted pro like Ted Butler who will answer your questions without pressure of any kind.
Putting the Pieces Together
There’s so much misinformation out there that it’s easy to make poor retirement decisions and place your future security at risk. In planning for retirement, you need a plan that’s truly comprehensive, one that’s actually five plans in one: a solid financial plan, a strong legal plan, a well-crafted medical plan, a carefully considered housing plan, and a clear and comprehensive family communication plan. These elements must all work together in an integrated way, not as separate, disconnected parts. That in a nutshell is why you need a LifePlan from AgingOptions – the only retirement plan we know of that weaves all these critical threads of retirement together. There’s nothing else like it.
Please accept our invitation to find out more by joining Rajiv Nagaich at an AgingOptions LifePlanning Seminar very soon. See for yourself – without cost or obligation. For all the details and convenient online registration, visit our Live Events page, or give us a call. Age on!
(originally reported at www.seattletimes.com and www.bizjournals.com)