More Americans Are Mortgage-Free Homeowners
By ERIN FLYNN JAY
A growing percentage of American homeowners have no mortgage on their property.
According to the U.S. Census Bureau, nearly 40% of homes in the country were mortgage-free last year.
That means more than 34 million homeowners have fully paid off their mortgage, leaders at the National Association of Home Builders said in a recent report.
Baby Boomers aged 60 years and older make up two-thirds of the homeowners who no longer owe money on their homes, but nearly 12% of the people who are living mortgage-free are between the ages of 45 and 55.
NHAB looked at the top five congressional districts for mortgage-free homeownership. They found they are primarily located in Southern states such as Texas, West Virginia, Kentucky, and Mississippi, where lower housing costs or favorable weather attract older residents.
In contrast, places with younger populations, more urbanization, and housing affordability challenges have fewer mortgage-free homeowners. Districts in California, Maryland, Virginia, and Washington, DC, have the lowest rates of mortgage-free homeownership.
Cash buyers are influencing mortgage-free homeownership rates in many areas.
According to the National Association of Realtors, a record number of people, 26%, are paying cash for their homes.
Gary Mintz, a realtor with Berkshire Hathaway HomeServices Fox & Roach, is licensed in Pennsylvania and his business is exclusively in Philadelphia. He is working with a lot of buyers who are paying cash and not taking out a mortgage.
“Most of the buyers (about 65-70%) are from out of town, with the majority being from New York and in particular NYC,” said Mintz. “Since they are paying cash and are not taking out a mortgage, they are the owners of the homes.”
The people who are paying cash have saved their money or have a significant trust fund. He is shocked by the amount of cash buyers he is seeing, as the price point he specializes in is over $500,000.
“How they are able to afford this is beyond me,” said Mintz. “They have at a minimum $500,000 in cash, with most having significantly more.”
Mintz said that in Philadelphia there are also people who have paid off their mortgages and own property outright. These mortgage-free homeowners have most likely lived in their homes for a long time and paid off the loan on a monthly basis.
In communities that are vacation-oriented, there are naturally more homeowners without a mortgage.
Glenn Phillips, CEO and lead economic analyst at Lake Homes Realty, said in their transactions focused on lake and beach homes, more than 50% of buyers each year pay cash, and this group is large enough to influence the overall market percentage.
Lake Homes sells “discretionary homes,” meaning the buyer is not purchasing out of necessity for shelter. They want a second home on the waterfront and the lifestyle that is associated with lake and beach living. Most of them are over 45 years old and have above-average incomes.
“These individuals typically have the means to pay cash,” said Phillips.
Phillips said there is more money available for real estate transactions than people realize.
“Headlines focus on mortgage rates and how this creates challenges for first-time home buyers and other families needing to relocate or upsize due to a growing family. These headlines ignore the number of older couples and individuals who have had a lifetime of growing their assets,” said Phillips.
Not everyone who can afford to buy a home with cash does so. In lower interest rate environments, they may choose to take out a mortgage.
During the pandemic when there were historically low interest rates, Phillips saw many lake home buyers who had the means to pay cash but chose a mortgage because it was an excellent hedge against inflation.
“If you have a mortgage at 3% and inflation is at 4% or 5%, then this loan is actually an investment with a real return, and the individual still has their cash to invest in other higher-yielding options,” said Phillips.
He explained that home buyers often think their offer is more valuable if it is a cash offer, but it doesn’t really matter to sellers.
“For a home seller, a cash offer only means that there is probably less risk than a competing offer that has a contingency on mortgage approval for the home (which can make the deal fall apart),” said Phillips.
Will there be an increase or decrease in mortgage-free living?
Phillips said it depends on the housing market and a variety of other factors.
“There is always a fluctuation up and down in the number of homeowners living mortgage-free, and this is driven by more than just interest rates,” he said.
Other factors include home prices, available inventory of homes for sale (impacting supply and demand, which then impacts prices and selection available), and stock market trends and volatility (impacting a cash buyer’s confidence in spending).
Phillips predicts that the number of homeowners living mortgage-free will float over time between 18% and 35%, and noted the change can be as much as 5% from month to month depending on the data source.
Editor Kimberley Haas contributed to this report.