Older Americans increasingly saddled with housing debt

Refinancings explain the growth in seniors owing on homes

National Insights /
Oct.October 22, 2020 08:00 AM
(iStock)

(iStock)

The share of older Americans with housing debt has doubled over the last 20 years, rising from 15.3 percent in 1995 to 32.7 percent in 2016.

Blame refinancings.

A recent analysis published by the Harvard Joint Center for Housing Studies found that equity extraction, refinancing and extended loan terms largely account for the increase in seniors’ housing debt over the last two decades. Among older Americans, the amount of debt jumped from $27,090 in 1995 to $70,000 in 2016, after adjusting for inflation.

The analysis used data from the Survey of Consumer Finances to examine the effects of a variety of factors on the growth in seniors’ household debt. Some factors were demographic, including race, income, wealth, the age at which homeowners took out mortgages, the rate of homeownership, the number of years the homeowner owned the property and home purchase price.

The remaining factors included loan term length, whether the homeowner refinanced their mortgage and whether the homeowner extracted equity from their home.

The analysis found that, all told, demographic factors only account for about 25 percent of the growth in debt. Far bigger contributors were “mechanisms that increase the incidence of debt conditional on the number of years that households have owned their homes,” wrote Jonathan Spader, the study’s author.

One such mechanism is refinancing. Term refinancings have nearly quadrupled over the last two decades, with the share of older households who had refinanced mortgages tripling to 10.7 percent in 2016 from 3.4 percent in 1995.

Another mechanism, according to the study, is mortgages with terms exceeding 30 years. The share of older households with such mortgages increased to 13.5 percent in 2016, up from 3.5 percent in 1995.

Spader suggests that older Americans are increasingly turning to refinancing and longer-term loans because they reduce monthly mortgage payments and allow more room for spending. Another possible explanation is that extended terms are an unintended consequence of households refinancing in a low interest rate environment and treating the 30-year mortgage as the default.

Refinancings among all American homeowners fell in the last week of August 2020, according to the Mortgage Bankers Association, but were still up by 40 percent over last year, with many homeowners taking advantage of historically low interest rates.


Related Articles

arrow_forward_ios
Hines chairman and CEO Jeff Hines with 609 Main in Houston, Texas (Hines)
Here’s what tenants are paying at Hines & CalPERS’ 609 Main
Here’s what tenants are paying at Hines & CalPERS’ 609 Main
Federal Reserve Chair Jerome Powell (Getty)
Traders eye Fed pullback on mortgage bonds
Traders eye Fed pullback on mortgage bonds
1133 Sixth Avenue, 114 West 47th Street, 537 Greenwich Street and 55 Broadway (Tdorante10/Wikimedia, Durst Organization, Easter Consolidated Google Maps)
These were the largest Manhattan real estate loans in May
These were the largest Manhattan real estate loans in May
The self-storage sector added about 300 million square feet of new supply over the last decade, as the number of apartments grew and the size of each unit fell. (iStock)
Here’s where the most self-storage space was built in the past decade
Here’s where the most self-storage space was built in the past decade
Blackstone Mortgage Trust CEO Katie Keenan (Blackstone, iStock)
Blackstone mortgage REIT names new CEO
Blackstone mortgage REIT names new CEO
Lower demand for refinancings has caused purchase loans to take a larger share of the market. (iStock)
Mortgage demand plummets to lowest level in a year
Mortgage demand plummets to lowest level in a year
Savitt Partners founder Bob Savitt and 530 7th Avenue. (Getty, 530 7th via Facebook)
Here’s what tenants are paying at Savitt Partners’ 530 Seventh Ave
Here’s what tenants are paying at Savitt Partners’ 530 Seventh Ave
Commercial real estate investment was harder-hit in the New York metro and Bay Area than in Greater Los Angeles. (iStock)
LA was top spot for commercial property investment in Covid-ravaged year
LA was top spot for commercial property investment in Covid-ravaged year
arrow_forward_ios

The Deal's newsletters give you the latest scoops, fresh headlines, marketing data, and things to know within the industry.

Loading...