Tag Archives: Mortgage loan

CR: Housing bubble: The “Wealth” is Gone, but the Debt Remains

Housing bubble: The “Wealth” is Gone, but the Debt Remains

by Bill McBride on 6/14/2013 02:00:00 PM

THE total wealth of American households has recovered from the financial crisis and Great Recession, according to the Federal Reserve Board. But … many Americans, particularly younger adults who took on heavy debt to acquire homes before the housing bubble collapsed, are lagging.

During the housing boom, said William R. Emmons, the chief economist of the Center for Household Financial Stability at the Federal Reserve Bank of St. Louis, “exactly the people you would think need to act conservatively were doing the opposite.” Homeownership rates, and mortgage debt levels, rose for younger households, as well as for less educated and minority ones. Those groups suffered more during the crisis, he said, and have been slower to recover.Mr. Emmons compiled average wealth figures for different groups from the triennial surveys … older households are down just 3 percent on average, while those headed by middle-age people are down about 10 percent. But the decline is nearly 40 percent for the younger group.

During the housing boom, households ended up with more of their wealth in real estate than before, and mortgage debt rose to record levels relative to the size of the economy. The proportion of wealth in homes is now back to close to the level of the 1990s, but the debt levels remain high by historical standards.
emphasis added

Household Real Estate Assets Percent GDPClick on graph for larger image.

This graph based on the Fed’s Flow of Funds report shows household real estate assets and mortgage debt as a percent of GDP.

As Norris noted, the bubble wealth is gone, but the debt remains (still high on a historical basis). This was especially hard on younger households since they bought during the housing bubble.

Read more at http://www.calculatedriskblog.com/2013/06/housing-bubble-wealth-is-gone-but-debt.html#5ebCmySFJbleFrzC.99

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JCHS: Are More Older Americans Retiring with Mortgage Debt?

Are More Older Americans Retiring with Mortgage Debt?

 by Irene Lew
Research Assistant
As the first wave of baby boomers prepare for retirement, it would be easy to assume that they’ve paid off their mortgage and credit card debt. However, data from the Census Bureau’s Survey of Income and Program Participation(SIPP) shows that older Americans today are grappling with mounting debt levels, even into their retirement years.  Among households aged 55 to 64, total median household debt jumped from $42,654 in 2000 to $70,000 in 2011—a 64 percent increase—while households aged 65 and over are now carrying more than twice the amount of household debt they were carrying a decade ago.  Even more surprisingly, older Americans had a larger increase in total median household debt than younger households, with the amount of total median household debt among householders under the age of 35 growing by a relatively modest 13 percent between 2001 and 2011.

Note: Percent changes are based on 2011 dollars.
Source: US Census Bureau, Survey of Income and Program Participation (SIPP), 1996 and 2008 Panels. 

The increase in debt among older Americans has been driven by a spike in the number of households who hold secured debt, which includes mortgages and home equity loans, even into their retirement years. According to data from the Survey of Consumer Finances, the share of households aged 65 and over with mortgage debt has nearly doubled over the past 20 years, from 21 percent in 1989 to 40 percent in 2010; among households aged 55-64 during the same time period, the share grew from 46 percent of households in 1989 to 69 percent in 2010. Just between 2001 and 2010, there was a 10 percent increase in the share of households aged 55-64 with mortgage debt and a 14 percent increase in the share of households aged 65 and over with mortgage debt.

Source: JCHS tabulations of Survey of Consumer Finances. 

It’s not just that more seniors are carrying mortgage debt; they are also saddled with much higher mortgage debt than they were carrying 20 years ago.  Although the median mortgage debt of all homeowners who are still carrying mortgage debt has increased from nearly $54,000 in 1989 to $109,000 in 2010, among homeowners aged 65 and over there was a 76 percent increase in the median amount of mortgage debt, from $15,180 in 1989 to $63,000 in 2010 (after adjusting to 2010 dollars).

While the dramatic rise in the share of older Americans with mortgage debt is partly the result of easily-accessible credit before the Great Recession (when many Americans took out home equity loans, extended mortgage terms, or refinanced their homes and took out cash), there is also evidence that older households were not spared from the Great Recession. A 2011 AARP studypoints out that, post-recession, a larger share of older homeowners with mortgages, particularly those with incomes below $23,000, are paying 30 percent or more of their income for housing costs. In fact, 96 percent of homeowners aged 50 and older with mortgages, who have incomes under $23,000, pay 30 percent or more of their income for housing.

Furthermore, a recent report from the Consumer Financial Protection Bureau (CFPB) indicates that more senior households are taking out reverse mortgages. According to the report, 70 percent of reverse mortgage borrowers in 2010 opted to take the full amount of the loan as a lump sum at closing, up from just 2 percent of borrowers in 2008. While data is not available on how they use these funds, this dramatic increase raises concerns about whether borrowers will have sufficient financial resources to cover their expenses later in life.

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