Housing Market Hits Boomers Hard

America’s older generation may have paid their financial dues and time in the labor market, but unfortunately they’re not immune to the housing crisis.

According to a study by AARP, 600,000 homeowners of the over-50 set are in foreclosure, and about 625,000 are at least three months behind on their mortgage payments. Approximately 3.5 million boomers—16%—are underwater on their mortgages and owe more than their home is currently worth.

Unfortunately, experts say these figures are not surprising.

“The big issue is the depreciation of homes,” says George Roddy, foreclosure expert and president of Foreclosure Listing Service in Dallas. “If you owe more than your home is worth it’s senseless to try and sell it because you’ll have to come to the selling table with cash.”

The economics of owning a house are not what they used to be, Roddy says, adding that the increased cost of things like gasoline, food, taxes and electricity have made it harder to become a stable homeowner.

“Prices for everything have gone up, but salaries have decreased and what you earn in your job is simply not keeping up with the costs you’re incurring for daily life,” he says. “Add that to the fact that the real estate market has been fairly dormant these last few years and you see why older Americans are affected the way they are.”

He says retirees living on a fixed income are typically in “good shape” in a healthy economy when it comes to meeting their monthly mortgage payments, but in the current environment with inflation and rising costs, budgets become strained.  “Usually, even when budgets are tight, people can get by, but the super- inflationary cost of living we’ve seen in the last five years have meant that a lot of people need to sell their properties to survive. The problem is if they’re underwater or behind on their mortgage, they simply can’t sell their homes.”

Most homeowners go into home ownership thinking, “If things get real bad, I can sell,” says Roddy. They see their home as a fluid asset that they can use for cash when things get tight, but when the home changes from an asset to a burden, it throws everything out of balance.

Since 2007,  more than 1.5 million people over the age of 50 have lost their homes due to foreclosure, according to AARP. In 2011, the foreclosure rate on prime loans for homeowners over 50 was 23 times higher than it was in 2007. Losing a home or losing the ability to sell a home can be particularly dangerous for boomers due to their potential need to move to another location or generate cash from their home, says Grant Moon, owner of VA Loan Captain, a home loan consultancy for veterans.

“The older you get, the more dangerous it can be to go underwater, because you get stuck in your home,” says Moon.

Many boomers may be planning to downsize their home, move into assisted living or simply make a change to a warmer climate for retirement, Moon says. Losing that ability to be flexible can completely change a person’s retirement years.

“A homeowner who is 62 today was 30 in 1980, and if they’ve been using their home as a cash machine for the last 30 years, getting second mortgages to pay for college, etc. then right now they have a big loan and the market has crashed down around them. We’re in a new day. This is a new kind of economy that no one has ever seen before,” Moon says.

For some people over 50, refinancing may be an option. Moon says his company gets at least 10 requests per week from boomer homeowners who simply want to know what their refinancing options are.

The new Harp 2.0 program allows underwater homeowners who haven’t missed a mortgage payment to apply for special refinancing options.  “It’s a great program, but it’s not available to everyone. Homeowners should go to a trusted lender and ask if there’s a modification that can be made,” says Moon.

Homeowners who don’t qualify for the Harp 2.0 program should check with the bank that holds their mortgage to see if the bank is willing to work with them, he adds. Banks that have had numerous homes go into foreclosure should be more than happy to work with a homeowner to prevent another loss.

“If your bank holds a lot of mortgages in neighborhoods where everyone is foreclosing, then they will be more likely to work with you,” says Moon. “Because the local economy in those neighborhoods have crashed, the banks haven’t been able to recoup their losses. They will definitely want to avoid taking a further hit.”

One of the reasons Boomers are so affected in the housing crisis is because they’re more established in their careers and are more likely to have had the buying power to purchase a home, says Jason Auerbach, Divisional Manager at First Choice Loan Services, the mortgage division of First Choice Bank in Princeton, NJ.

“It’s a double-edged sword,” says Auerbach. “The older you get, the more success you’ve had, and the more likely you are to own a home. Unfortunately, if you’re over 50 and you’ve also been laid off, the more difficult it will be to find a job that pays commensurate to what you were making historically. If you’re making less money, it’s going to be harder to make those payments.”