End-of-year round-ups are often forward-looking and cheerful, and a recent report from some bankers who sell home loans was no exception. What’s gotten the National Reverse Mortgage Lenders Association so excited was that in the past two years, the value of all the homes owned by America’s elderly has increased faster than the debt that group still owes in mortgage payments. In the fall of 2013, the nation’s elderly were estimated to have owned $6.28 trillion in residential real estate and collectively owed $1.43 trillion on their mortgages. Two years later, the houses were worth 15 percent more, but the mortgage debt had only increased 2 percent.
This bodes well for those who issue reverse mortgages. (In a reverse mortgage, a bank pays a homeowner a monthly sum as an advance on his or her home equity. When the homeowner dies, the reverse-mortgage lender has a claim on the house.) Bankers who specialize in reverse mortgages are pleased that these home values are going up because they will be able to sell more reverse mortgages to the few lucky elderly who have substantial home equity. But reverse mortgages can be a sign of economic desperation—only those without other options would consider one, since they don’t tend to supply very much in monthly payments and can result in years of asset accumulation being handed over to a bank instead of passed down to children.
But things can always be worse: In the next decade, there will be whole swaths of the America’s elderly population that won’t even have equity to draw on and will be in serious financial trouble.
To start, there are going to be more elderly Americans than ever before. In 2010, Baby Boomers started turning 65, and 72 million Americans will turn 65 over the next 20 years, at a rate of 8,000 per day. Many will turn 80 (and older) for many decades after that. The rate of increase of 80-year-olds is worrisome because old age is a risk factor for poverty.