August 09, 2016

Three Reasons Why Baby Boomer Homeowners are a Market to Watch

Dave Lowman
Dave Lowman, EVP Single-Family Business

When you picture someone who is 55+, it's time to update your thinking because the second-largest generation in history is your next business opportunity. At 67 million strong, the influence of 55+ homeowners will be significant.

Consider that at age 55, our grandparents started moving to retirement and senior living communities. By contrast, today's Baby Boomers are a vibrant, confident generation who are living longer and are definitely on the move. It's important that we, as an industry, better understand the changing face of those who are 55+ because the decisions they make over the next five years will have a significant impact on the demand for housing and mortgage credit.

That's why we recently commissioned GfK to survey about 4,900 55+ homeowners about their financial confidence and housing plans. While this group counts for only one-quarter of the population, they own two-thirds of all the housing wealth.

Market Opportunities for 55+ Homeowners

To size this market potential, we combined the survey results with population data, and here are three important things to know about 55+ homeowners:

Moving is in their future: Nearly 25 million 55+ homeowners prefer to move at least one more time. About 9 million of them expect to move within the next four years and 6.5 million of these movers plan to buy a home.

Potentially millions will look for financing options: About 20 million 55+ homeowners plan to buy a new home or finance age-in-place renovations, creating a significant market opportunity. It's also important to know that 36 percent of retired 55+ homeowners and 57 percent of those still in the workforce carry a mortgage, and the majority still have 10 years on their loan.

This is a financially confident generation: In addition to holding $8 trillion of home equity, more than three-quarters, or 51 million, 55+ homeowners are confident they will be financially comfortable in retirement.

The bottom line: This is a sizable market. Even a relatively modest increase in lending to 55+ homeowners could add trillions of dollars in new originations in a relatively short time.

Addressing the Needs of 55+ Homeowners

Of course there are challenges to be faced as well. Age-in-place Boomers will put additional pressure on housing inventories and affordability for new homebuyers, particularly Millennials. As an industry, we need to think about how to address and balance the needs of these two generations in the coming years.

On the 55+ homeowner side of the equation – the topic of today's discussion – here are some of the recent steps we have taken to address their upcoming housing needs:

Providing flexibility to use retirement accounts as qualifying stable monthly income: Under Freddie Mac guidelines, Individual Retirement Accounts and 401(k)s, lump-sum retirement account distributions, and/or the proceeds from the sale of a borrower's business can be used to determine a borrower's eligibility for a mortgage. In the past year, we've provided more guidance on how best to calculate a borrower's qualifying stable monthly income using these sources and made it easier to document their use. And we have also long allowed lenders to use income from dividends, interest payments, trust distributions and Social Security to calculate a borrower's qualifying income. All of this is good news for retiring Baby Boomers who have limited incomes but substantial financial assets.

Reaching out to the industry to better understand renovation product needs: Age-in-place renovation is another important need for this market. For these Boomers, we currently offer a Renovation Mortgage, as well as flexibilities for borrowers to incorporate energy efficiency improvements into their mortgage. In addition, we're conducting outreach with our lender partners to better understand where improvements to these offerings may be needed to address the market opportunities.

Making it easier to originate and sell condo loans to us: For some of the 55+ homeowners looking to downsize or move to a different location, condo living may be a good option. We've facilitated more condo sales by helping our lenders better understand our requirements and workflows for condominiums, which we've streamlined and clarified over the past two years. These changes addressed common misconceptions lenders had about our requirements, including those around project reviews, investment properties and loan-to-value ratios.

These are just a few of the things we're doing on our side to prepare, but we have our eye on the future too. Now is the time for us as an industry to work together to meet Baby Boomers' housing needs and position ourselves to take advantage of this opportunity as it unfolds in the coming years.

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