by George Masnick Senior Research Fellow |
According to
the Federal Reserve Bank of New York, aggregate mortgage debt stood at $8.6 trillion in Q2 2014, down from its peak of $10.0 trillion in Q3 2008. Many have
interpreted this decline as a sign that consumers have become chastened by the
Great Recession’s bursting of the housing bubble and are voluntarily paying
down their mortgage debt to more sustainable levels. For those thinking in such terms, I recommend
a paper further analyzing the same Consumer Credit Panel data that produces
the aggregate debt estimates just cited. In a masterful exercise, Fed economist Neil Bhutta
concludes that the recent drop in mortgage debt has more to do with shrinking
inflows than with expanding outflows, including mortgage defaults:
A critical
limitation of the Fed’s Consumer Credit Panel data is that it includes very
limited demographic information (only the age of the borrower). But Bhutta’s
findings are supported by a recently released Census Bureau report on the growing wealth inequality in the U.S. that reports on trends in mortgage debt broken down by a wide
variety of household demographic characteristics. These data, collected by the Survey of Income
and Program Participation (SIPP), clearly show a post-Great Recession decline
in the share of young households with home debt (Figure 1) – consistent with a dramatic slowing of movement into
first-time homeownership. At the same
time, the report also shows that the percentage of older households with home
debt has continued to increase. Since
2000, the share of homeowners aged 65-69 with home debt increased by almost 33
percent, and the share of those aged 70-74 increased by almost 65 percent. This trend is consistent with today’s older
owners failing to pay down their mortgages as diligently as did earlier
generations. Both equity extractions to
garner cash to pay for other expenditures, and simple refinancing and extending
the payment period to lower monthly payment costs will slow the pace at which
homeowners pay off their mortgages.
Source: Census Bureau tabulations of Survey of Income and Program Participation (SIPP) data
Moreover,
among those households with home debt, overall median debt outstanding has
continued to increase post-Great Recession, albeit at a diminished pace (Figure 2). The increase
in median home debt is especially true among the elderly. Median outstanding home debt for homeowners
aged 65-69 with a mortgage increased by 46 percent between 2000 and 2005, and
another 8 percent between 2005 and 2011. The corresponding figures for 70-74 year old owners with home debt are
18 and 33 percent. This doesn’t
necessarily indicate a recent rise in refinancing activity among these older
households. Rather it likely is attributable to the aging of 60-64 and 65-69
year olds (with higher mortgage debt from the previous periods) into the 65-69
and 70-74 age groups.
Source: Census Bureau tabulations of Survey of Income and Program Participation (SIPP) data
Growing
mortgage debt among the elderly is troubling. Declining income later in life is inevitable for most households. With mortgage payments a continuing part of
the monthly household budget, in addition to real estate taxes and the expense
of home repairs, many elderly with high housing cost burdens will need to
postpone retirement or spend less on other needs like food or health care. Fewer will be able to draw on wealth
accumulated through growth in home equity to help pay the bills late in
life. Some will let their homes fall
into disrepair or will be forced to sell their homes when they would prefer to
age in place. This is a trend worth our
continuing attention and concern.
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