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The Elderlaw Forum: Reverse mortgages and the "Generational Housing Bubble:
Professor Michael Myers
Wednesday, February 4, 2009
The paid-for family home -- long considered a source of secure housing for the old and an eventual inheritance for the young -- "ain't what it used to be."
"I've had my mother's home on the market for 18 months," said the helpline caller. "It's in a great location. I've received two offers; the first was for $90,000 under what the realtor said it was worth, and the second was $120,000 under the asking price. You estate-planning folks are supposed to have an eye on financial markets.
"Should I sell at this absurdly low price? How long is this deflated housing market going to last? Or, is it going to get worse?"
My answer, paraphrasing Danish Physicist Neils Bohr: "Prediction is very difficult; especially about the future." Many economists believe the current housing downturn will bottom out next year and rebound by 2011. It may; but another, more disturbing view is held by two University of Southern California researchers.
They believe a bubble of even more monumental proportions will follow the present housing bubble. They call it the "generational housing bubble." Its underlying rationale is quite simple: 78 million "baby boomers" are entering the years when seniors typically sell their homes and downsize. Demographically, there will more sellers than buyers.
The researchers -- Professor Dowell Myers and Doctoral Candidate Sungho Ryu -- speculate the "generational housing bubble" could last for up to two decades. They contend the market shift could come quickly after 2011 as the leading edge of the boomers pass age 65. At 75, they are three times more likely to be sellers, and at 80, nine times more likely to be sellers.
One way to extract useful value from the family home is a reverse mortgage. It may not produce the same level of cash flow available to reverse mortgagors two years ago; nevertheless, it may offer badly needed income as the value of stocks and pension funds plummet.
The caller's mother may wish to sell the family home at the offered price and take advantage of a new reverse mortgage rule. Starting January 1, 2009, FHA will begin to insure reverse mortgage loans for the purchase of a new home. This would allow her to downsize, be nearer to her son's family, and keep more of the proceeds from the sale of the family home.
This may be her best protection against the "generational housing bubble."
Pro bono legal information and advice is available to persons 55 and older through the USD Senior Legal Helpline, 1-800-747-1895; mmyers@usd.edu. Opinions are solely those of the author and not the University of South Dakota.
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