Due largely to home prices nationwide hitting new record highs month upon month, home equity in the first quarter of 2021 rose by some 20% from the previous year, CoreLogic reported in June. That's a collective gain of almost $2 trillion and an average $33,400 per borrower. And that spells the opportunity for mortgagors to cash in via a Home Equity Conversion Mortgage (HECM, or reverse mortgages insured by the federal government for borrowers age 62+).
California leads the way when it comes to the utilization of reverse mortgages, according to a study conducted by American Advisors Group (AAG), a home equity solutions company focused on older Americans.
"Seniors throughout the country are taking advantage of the strong housing market and tapping into their home equity to create financial flexibility," said AAG Chief Marketing Officer Martin Lenoir. "While California has historically been a popular market for the reverse mortgages, we're starting to see greater adoption in many more states such as Colorado and Utah. Seniors are realizing that their growing home equity is one of their greatest assets and that now is the time to utilize it."
With 11,921 total loans in 2020, California has topped this HECM-volume list since 2016. Within the state, Los Angeles was by far the most popular county for reverse mortgages in 2020 at 3,068.
"It's no surprise that California leads the list with the average home values increasing every year for the last five years," according to AAG's report. They added that Florida has held as the No. 2 most popular state in volume over the same period of time, and its top county in 2020 was Miami-Dade, with 519 total loans.
HECM volume has increased in Colorado over the past few years, climbing from No. 5 on the list in 2016, to No. 3 in 2020.
"Not only has the total volume increased in Colorado, but if we look at the total loan amounts in comparison to each state's senior population, Colorado has ranked number one since 2019," report the researchers at AAG.
Not only is home equity a good way for seniors to have some extra cash, but it also offers a form of protection for homeowners who endured financial strains during the pandemic, according to economists.
"Homeowner equity has more than doubled over the past decade and has become a crucial buffer for many weathering the challenges of the pandemic,” said Frank Martell, President and CEO of CoreLogic. "These gains have become an important financial tool and boosted consumer confidence in the U.S. housing market, especially for older homeowners and baby boomers who've experienced years of price appreciation."
For homeowners hesitant to tap equity for fear of credit knocks, economists say borrowers need not be afraid that tapping their home equity could hurt their scores.
" ... at least not in the long term," said economist Tendayi Kapfidze, a statement he based on data collected from 1,500 borrowers across 40 metropolitan areas who applied for a second mortgage.
The top 10 cities for reverse mortgages include:
- New York
- North Carolina