Housing Market Adds to Seniors’ Equity

The equity in older Americans’ homes has risen smartly over the past year, fueled by the housing market rebound.  But whether retirees will tap these gains to pay their bills remains in doubt.

Equity values for homeowners who are 62 or older was $3.34 trillion in the second quarter of this year – nearly 10 percent above its $3.05 trillion value a year earlier – according to new data released by the National Reverse Mortgage Lenders Association (NRMLA), a trade organization.

Rising house prices are restoring equity even in places like Florida devastated by the housing market bust.  Seniors’ home equity has surged 14 percent there over the past year, to $241 billion in the second quarter of 2013, though it remains far below the levels reached during the bubble.

The equity gains are not being propelled by homeowners paying off their home loans.  U.S. seniors owed $1.07 trillion on their mortgages in the second quarter, compared with $1.09 trillion a year earlier, the trade organization said.

The housing market rebound is a reminder that equity is the largest single asset that older Americans hold – it’s worth more than their savings in their 401(k)s and IRAs.  But the question remains: does this help them?

Few retirees tap their home equity as a source of income either by downsizing to a less expensive house or through a reverse mortgage.  Last year, less than 55,000 took out a reverse mortgage. Federally insured reverse mortgages, which are available to U.S. homeowners over age 62, are backed by the equity in the house.  The principal, plus interest and some federal insurance fees, do not have to be repaid until the homeowner moves or dies and the house is sold.

Rising home equity adds reserves that can be tapped to pay day-to-day expenses in retirement as well as emergencies.  But how much of this equity will American retirees take advantage of?