Tapping Into Home Equity

A report released on Thursday by the Urban Institute analyzing the Federal Reserve’s 2016 Survey of Consumer Finances to report what can be known about senior homeowners. The report cites Census Bureau data showing that seniors age 65 and older have a homeownership rate of 78.2 as of Q3 2017—compared to a homeownership rate of 63.7 percent.

Though seniors have the financial stability of their homes to fall back on, only half of American workers are reporting that they feel confident about their retirement savings. “Retirees could improve financial security by liquefying home equity to supplement their retirement income or reduce their debt burden,” the report noted.

According to Fannie Mae data cited in the report, currently 80 percent of homeowners age 55 and older reported that they are not interested in reverse mortgages, however, the Urban Institute found that home equity is “the largest source of net worth for most homeowners.”

However, home equity across races is not equal. White homeowners ages 65 and older have a median net worth of $384,100 and a median home equity of $152,000, as of 2016. Black homeowners of the same age group have a median net worth of $109,360 and a median home equity of $70,000 and Hispanics respectively sit at $133,700 and $100,000.

In terms of median home equity, median net worth and median income, the numbers for black households are 46, 28 and 64 percent of the respective totals for white households.

In addition, white nonhousing wealth—including cash savings, stocks, bonds, annuities, etc.—took up a greater portion of the net worth than it did respectively for the net worth of black and Hispanic households.

The Urban Institute also found that the net worth of a household and the proportion of that net worth taken up by home equity are inversely related. For households with lower incomes, the home itself is the greatest source of financial security.

With a greater proportion of their wealth tied up in housing, black and Hispanic homeowners are much more likely to need to tap into their home equity through mechanisms such as Federal Housing Administration (FHA)-insured Home Equity Conversion Mortgages (HECMs).