U.S. homeowners remain on edge about the prospects of the nation’s economy in the months ahead, but people also seem to have slightly more willingness to employ financial products that can allow them to tap into their home equity for additional cash flow. This is according to the results of the second annual Home Equity Punch List survey released by Finance of America Reverse (FAR).
The survey, first launched in 2022, is designed to quantify U.S. homeowners’ perceptions and understanding of home equity, as well as drivers behind long-term financial planning decisions. The new results show that overall sentiment about the way the U.S. economy is functioning has not changed since 2022.
Sources of anxiety
“[There is] persistently high anxiety among U.S. homeowners as it relates to their economic outlook and personal finances,” the results explained. “Nearly 8 out of 10 (79%) homeowners surveyed feel anxious about the state of the U.S. economy, the same as 2022, while anxiety about financial expenses increased further.”
Anxiety is also higher among homeowners attempting to gauge the affordability of their needs and wants, and a range of anxiety sources continue to persist among homeowners. These include unexpected healthcare costs in retirement (61%, up from 48% in 2022); 40% of homeowners being nervous about their ability to pay off debt; and 41% of homeowners feeling anxious about larger discretionary purchases such as a new car.
Men and women are also overwhelmingly concerned about long-term financial matters, but women feel the anxiety far more acutely according to the results. 82% of women responded that they felt such anxiety compared to 75% of men. Generationally, baby boomers were generally in-line with their younger counterparts when it comes to overarching economic anxiety, though boomers appear far more confident in their ability to retire on their own terms.
Just 35% of baby boomers said they were anxious about their ability to do just that, compared with 65% each for both Generation X and millennial respondents.
Home equity awareness
While education remains a critical reverse mortgage industry priority, the FAR survey indicates that there continues to be varying levels of understanding and familiarity with home equity tapping products. Interestingly, respondents who reported awareness of reverse mortgages also shared a greater degree of understanding about other equity-tapping options, according to the results.
According to the survey, “73% [of those familiar with a reverse mortgage] report[ed] they were aware home equity could help supplement income in retirement, compared to just 40% for those unfamiliar with a reverse.”
There also appeared to be less familiarity with reverse mortgages and other adjacent products among women and baby boomers, the industry’s currently predominant demographic.
“Baby Boomers reported being less familiar with home sharing, cash-out refinancing, reverse mortgages, and cryptocurrency when compared to Gen X and Gen Z/millennials,” the results said. “Women and older generations were also less familiar with different financial products and less aware of how the benefits of home equity – and reverse mortgages specifically – can help address many of their financial concerns, including the ability to pay for certain expenses, such as healthcare costs and home renovations.”
The results illustrate the retirement reality for many Americans, according to Chris Moschner, chief marketing officer of Finance of America Companies.
“[High anxiety levels] coincide with the fact that more than three in four seniors can’t meet their financial obligations in retirement and America’s retirement savings gap is nearing $4 trillion,” Moschner said. “There is a persistent lack of education and limited understanding of the benefits of home equity-based solutions and reverse mortgages — such as supplementing retirement accounts, helping older homeowners age in place, and paying for long-term care needs — exacerbating the problem further.”
The growth in awareness of home equity tapping, however, is encouraging.
“It’s promising to see an increase in the number of older adults who are open to tapping their home equity,” he said. “However, when you consider that seniors aged 62 and older have amassed more than $12 trillion in home equity, there’s a massive opportunity to use the home as both a shelter and a springboard for today’s modern retirees.”
Room to expand education
The survey results underscore the need for reverse mortgage companies to expand their educational and outreach efforts, the survey results said.
“Roughly 4 in 10 homeowners (37%) work with a financial advisor, similar to 2022,” the results explained. “Of those surveyed with a financial advisor, nearly 9 in 10 (88%) trust their financial advisor [and] would speak to them about a home equity loan if in their best interest. However, only 31% have ever spoken with their advisor about a home equity loan (compared to 29% in 2022).”
“Compliance requirements” and “lack of understanding of strategies and products” are sources of potential aversion financial advisors may have toward home equity products like a reverse mortgage, according to a 2020 study by the Academy for Home Equity in Financial Planning at the University of Illinois Urbana-Champaign.
“We are well-positioned to help retirees live more comfortably and thrive in retirement, yet that requires greater education and collaboration among homeowners and financial advisors alike to help narrow the familiarity gap,” said Steve Resch, Vp of retirement strategies at FAR. “This can be accomplished by cutting through the clutter and demonstrating how reverse mortgages have materially benefited retirees and the distinct benefits that can flow from home equity-based financial solutions.”
