Home equity generally increases with age as homeowners pay off their mortgage balances and home values rise, so it’s not surprising that seniors age 65 and older command the largest share of available home equity in the U.S., according to a recent study from the Urban Institute.
Owners age 65 and older command $3.1 trillion of the nation’s accessible housing wealth. This represents 44% of the $7 trillion in net housing wealth that is accessible among American homeowners, according to the Urban Institute’s analysis.
Meanwhile, homeowners under age 40 hold only 6% of accessible housing wealth despite accounting for 17% of all homeowners nationwide.
Accessible housing wealth is even more concentrated in units owned by homeowners age 65 and older without a mortgage. Only 16% of homeowners under 40 were free of home debt, compared to over 70% of those 70 or older.
Moreover, researchers found that although owners age 65-plus without a mortgage made up only 19% of all homeowners, they own 30% of total housing wealth and 35% of all accessible wealth.
“Older consumers are more likely to have paid off all or part of their mortgages before the financial crisis, giving them more equity in their homes and making the housing burden more manageable,” states the Urban Institute in the study.
To measure the net and accessible housing wealth of Americans with owner-occupied homes, the Urban Institute uses the latest consumer credit card data supplemented with public property records and the American Community Survey’s Public Use Microdata Sample data.
Of the 73.3 million owner-occupied units across the U.S., the Urban Institute found 46.4 million had home debt such as mortgages and equity loans. In contrast, 26.9 million homes were owned free and clear without any home debt.
On average, each owner-occupied unit had a net housing wealth of $150,506, after subtracting all outstanding debt. For homes free and clear, the average net housing wealth was $229,296; and $104,932 for those with debt.
The Urban Institute study shows that the drive of Americans to achieve homeownership has generated significant accessible housing wealth. It also shows the inequality in net and accessible housing wealth across households, both demographically and geographically.
These findings raise several important policy questions that examine how homeownership, in and of itself, contributes to inequality; how current government policies exacerbate housing-based inequality; and how the wealth of lower-income homeowners can be better protected against a major downturn in home prices.
“Notwithstanding these concerns, homeownership remains an important part of wealth building among the vast majority of the population,” the report states. “Government at all levels, the government-sponsored enterprises, lenders, housing providers, and advocates must work together to improve access to mortgage credit that allows owners to sustain homeownership and enhance the economic well-being of their families.”
View the Urban Institute study here.
Written by Jason Oliva