Growing numbers of American seniors are carrying forward mortgage debt, an issue that is likely to become exacerbated due to the effects of the COVID-19 coronavirus pandemic, as retirees are seeing many of their investments and accounts being negatively impacted by the national economic stand-still. This is according to data analysis from the Urban Institute and Harvard University’s Joint Center for Housing Studies, in a story at the Wall Street Journal (WSJ).
“In the U.S., some 9.18 million homeowners age 65 and over have mortgage debt, according to federal data analyzed by the Urban Institute. That’s up nearly 60% from 5.82 million a decade ago,” WSJ reporter Christina Rexrode writes. “Homeowners 65 and over who have mortgage debt owe a median of $72,000, according to separate federal data analyzed by Harvard University’s Joint Center for Housing Studies.”
After buying a home in their younger years, many people that are now getting closer to retirement may have either purchased a new home in the intervening time, or moved to a different city. These transactions often come with a new mortgage, adding years to the life of their mortgage debt or paying tens of thousands of dollars in additional interest, Rexrode writes. Even refinance transactions to take advantage of lower rates may have “reset the clock” on debt, she says.
When older people carry mortgage debt at or near retirement, the ability for them to weather job losses or to cover unexpected expenses is significantly diminished. This causes many older people to have to work longer than they have planned to, Rexrode writes, with some economists relating to WSJ that seniors could become more susceptible to foreclosure.
“There are definitely some signs of potential trouble ahead,” according to Jennifer Molinsky, senior research associate at Harvard’s Joint Center to WSJ.
The retirement landscape has already changed for two major reasons: rising costs and the stagnancy of wages, Rexrode writes.
“Many boomers are saddled with expensive medical bills and student loans, both their own and their children’s,” she says. “Now their long-held financial template—with homeownership as the foundation for savings—is also growing shaky.”
30 years ago, roughly 20% of American homeowners at or over the age of 65 had mortgage debt, according to research from Harvard’s Joint Center. Now, that figure is closer to about 40% of older Americans who maintain housing debt, while the median owed amount has “quadrupled after adjusting for inflation,” Rexrode writes.
The share of seniors who count as first-time homebuyers has also increased, with 11% of new homebuyers being age 55 or older, according to research from the National Association of Realtors (NAR).
However, the new class of retirees does not have the same kind of anathema toward tapping home equity as their parents, Rexrode writes.
“Boomers, unlike their parents, didn’t grow up in the Great Depression or celebrate paying off a mortgage with a note-burning party,” she writes. “They are more comfortable with debt as a strategic financial tool and don’t view tapping their homes for cash as the last resort that their parents did.”
Read the story at WSJ, subscription required.