Baby Boomers Staying Put

In the past, many empty-nesters downsized upon sending their children away for school and growing older. However, the Baby Boomers are defying this traditional pattern. With roughly 10,000 people reaching age 65 each day for the next 15 years, and 17% of the 76 million Boomers already in retirement, the decisions this generation makes are central to the housing market.  63% of Baby Boomers plan to stay in their current home once they retire, according to a survey of 4,000 Baby Boomer households conducted by the non-profit Demand Institute. Why? Many simply are not financially ready, with a substantial amount of equity tied up in their homes. The financial crisis caused the average Boomer household's net worth to drop from $200,000 in 2007 to $143,000 in 2013 according to Federal Reserve data. Additionally, the median outstanding mortgage balance for 50- to 69-year olds more than doubled from $48,743 in 1992 to $118,000 in 2013.

The financial situation is particularly tough for those also in the sandwich generation--middle aged people who find themselves supporting both aging parents and their children. This recent phenomenon can be explained by an increase in the average life expectancy in conjunction with an increased number of "adult children" living at home. A 2013 Pew Foundation survey of 2,511 U.S. adults revealed that at least 15 percent of middle-aged adults are financially supporting both their parents and children.

The Baby Boomers surveyed placed little weight on "aging-friendly" homes, with only 1/5 planning to live in a senior housing. This is despite the fact that roughly 75% reported serious health issues such as arthritis or high blood pressure.

Refinancing 101

Refinancing is the process of replacing your original mortgage with a new mortgage that has a more favorable interest rate and term. Many people choose to refinance when they have home equity (the difference between the amount owed to the mortgage company and the home's value). In other words, refinancing is paying off an existing loan with the proceeds from a new loan. Refinancing lenders typically require a percentage of the total loan amount, in the form of "points," as an upfront payment. One point equals 1 percent of the total loan amount. The more points, the better, because a larger payment upfront results in a lower interest rate.

Pros
Refinancing can reduce monthly payments and interest rates, and allow people to choose a different mortgage company or take cash out of their home preceding a large purchase. Homeowners can also cancel their private mortgage insurance (PMI) with a mortgage refinance loan, as the home's value increases and the balance on the home declines. Some people refinance to switch between an adjustable rate mortgage and a fixed one. For those with balloon programs such as ARMs, refinancing allows someone to switch to a new, fixed rate before the entire mortgage balance is due at the end of the term (usually five to seven years). One other reason for refinancing is to consolidate other debts into one loan.

Cons
However, there are risks involved. People may incur penalties that can amount to $1000+ for paying down their existing mortgage with home equity credit. Make sure you have an understanding of the fees involved before committing to refinancing. Fees can account for 3-6 percent of your outstanding principal and include the application fee, title insurance and title search, the lender's attorney review fees, homeowner's insurance, the appraisal fee, and points and fees incurred in loan origination. Your savings in interest must exceed refinancing fees in order for refinancing to be worthwhile.

Interested in refinancing? Experiment with the home refinance calculator. To learn more about refinancing a home, watch the short video below:

Predictions of the 2014 Housing Market

An article published by Realtor.com discusses five trends that experts predict to see this year:

1) Stable Inventory. 2013 was noted for its historically low inventory. In previous months, inventory gradually increased, although average age of inventory is still lower (down 11% in 2013), illustrating the fact that homes are selling faster than they were in 2012.

2) Positive Equity. Increased home prices helped 25 million homeowners regain positive equity status during the second quarter of 2013. Median list price for homes in October rose 7.57 percent above that of October 2012. Home prices are expected to continue increasing in 2014, which is good news for the 7.1 million homes still in negative equity (as of the second quarter of 2013).

3) Fewer Foreclosures. Foreclosure inventory has dropped to multi-year lows, indicating that foreclosures will have a minimal impact on the 2014 housing market. In fact, September 2013 marked the 36th consecutive month with a year-over-year decrease in foreclosure activity. 

4) Increased Mortgage Rates. Even though mortgage rates have already increased 100 basis points in 2013, they are nonetheless expected to rise. Janet Yellen, the chairman-designate of the Federal Reserve, pledges to continue the policies of Ben Bernanke, including keeping mortgage rates low by buying blocks of mortgage-backed securities.

5) Less-Afforable Homes. Increased home prices have outpaced increased income, resulting in the lowest Home Affordability Index in five years (as published by the National Association of Realtors).

While some of these patterns are favorable and others are not, it is important to remember that they are only speculative. The real estate market changes every day, alongside changes in the general economy. Keep up with my blog in order to stay informed of real estate market trends!