Paying off a mortgage is a huge accomplishment for homeowners.
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More American households are owning their homes free and clear with the burden of paying a mortgage out of the picture, according to a new data analysis from Zillow, which reveals that 37% of homes in 2017 no longer had mortgages to pay.
Older homeowners especially are making headway on mortgage debt. Forty-one percent of homes owned by Baby Boomers were mortgage-free in 2017.
Baby Boomers who are in the 55-to-69 age group comprise about 33% of all homeowners and have had many years to pay off their mortgages and build wealth. There are almost twice as many Baby Boomers (25,661,552) as there are Millennials in the 25-to-39 age group (12,662,948).
Sixty-eight percent of adults 70 and older are mortgage-free, while 15.9% of Millennials are free and clear of mortgage payments. For younger homeowners, there are pros and cons to paying off a mortgage early, so it’s important to look at the big picture and trade-offs.
Zillow economist Jeff Tucker said it is becoming more prevalent for older adults to own their homes outright after paying off mortgages. While many Baby Boomers have a strong preference to age in place, Tucker said patterns strongly suggest a large majority of this age cohort will age out of homeownership, and a large number of Millennials who are renters will become homeowners.
“That’s assuming Baby Boomers will behave like previous generations as they age,” said Tucker. “But there is always a question of changing trends and whether this generation will behave a bit differently.”
According to Harvard University’s Joint Center for Housing Studies, “Accrued wealth provides financial stability for older adults, ensuring the means necessary to pay for day-to-day expenses as well as supportive services later in life. Homeownership is strongly associated with wealth, given that home equity contributes significantly to household balance sheets.”
For Baby Boomer households, downsizing or moving into rental units is likely. Tucker emphasizes that many older adults in need of long-term care eventually will find housing at assisted-living or other care facilities.
A growing number of older adults are choosing age-restricted housing, which includes senior apartments and independent living units as well as assisted-living facilities.
Student loan debt is a pressing issue for Millennials struggling for a foothold in the housing market.
“It’s not just the cost of the house that makes it hard to qualify for a mortgage,” said Tucker. “It’s also higher rates of student debt, which is adding to that debt-to-income ratio, and tighter credit standards. You need to go to pretty extensive lengths to verify your income, assets and your job to get into a home today.”
In addition, recent economic and housing market conditions have depressed homeownership rates among younger households, according to the Joint Center for Housing Studies, which found that “whether because of low incomes and savings, high levels of student debt, the rising cost of housing, or concerns about the riskiness of the investment, many potential first-time buyers have yet to own homes.”
In the second quarter of 2019, the U.S. homeownership rate of 64.1% was down slightly from the rate in the first quarter (64.2%) and the same quarter a year earlier (64.3%), according to the U.S. Census Bureau.
The homeownership rate was highest in the Midwest (68%), followed by the South (66%), the Northeast (61.2%) and the West (59.3%). It was highest for the 65-plus age group (78%) and lowest for the segment under age 35 (36.4%).
In the years since the Great Recession, the homeownership rate for people under 35 has begun to tick upward.
“That’s some good news but it’s just the beginning of making up lost ground,” said Tucker.
Data analytics provider CoreLogic finds that home purchase activity is picking up among home buyers ages 18 to 44. Three cities in particular have shown significant increases in mortgage applications among this age group: Providence, Rhode Island (up 23.5 points), New Orleans (up 17.4 points) and Dayton, Ohio (up 16.6 points). Conversely, shares among these young buyers are decreasing in Tulsa, Oklahoma (-12.9 points), Oklahoma City (-11.6 points) and El Paso, Texas (-11.6 points).
States with lower home prices have a greater number of homes that are free of a mortgage.
West Virginia ranks in the top slot with 54% of mortgage-free homes, followed by Mississippi at 51% and Louisiana at 48%.
“The states with the lowest rates of mortgage-free homes are places with either less affordable homes, more of younger households relative to old ones, or both,” said Tucker.
“California has got the most expensive cities in the country, including San Jose, San Francisco, Los Angeles and smaller coastal towns,” Tucker said. “Even Sacramento is expensive nowadays in the scheme of things. Really expensive places make it hard for people to buy their homes outright. And it just takes longer to work down that mortgage, so I think that’s why we see a pretty low rate of free-and-clear homeownership there.”