By CHUCK GREEN
Okay, you’ve undoubtedly heard of those who play with house money. Yeah, that rocks.
By the same token, you’re probably similarly familiar with those who don’t owe money on their house. No mortgage. Zippo.
That not only rocks – and thunderously, at that — it brings the house down. C’mon, who doesn’t dream of having a mortgage-burning party and being free of that debt?
But home mortgage burnings are nearly unheard of in present-day America as the country is now more of a mortgage-ownership society than a home-ownership society.
Mortgage balances were at $12.04 trillion at the end of March, according to officials at the Federal Reserve Bank of New York’s Center for Microeconomic Data.
The free and clear homeownership rate in the U.S. is presently estimated at between 20% and 25%, Peter Earle, an economist at the American Institute for Economic Research, told The Mortgage Note.
“That rate’s fallen over the last few decades owing to more frequent moves. It’s far less common for individuals to live in a single house and pay it off than it is to move from place to place, downsize and, or eventually, shift to a rental or condo,” Earle said.
Why own outright?
As far as Orphe Divounguy, senior macroeconomist at Zillow Home Loans, is concerned, the primary advantage of owning a home outright is “having a ton of housing wealth.”
Those who own outright can tap into their home equity to pay down costly high-interest-rate credit cards and other debts, Divounguy said.
“These owners simply have more options,” Divounguy told The Mortgage Note. “They’re in stronger financial shape and can better withstand rising interest rates and stubbornly high inflation.”
Why have a mortgage if you can afford not to?
Some people may carry a mortgage because they want to invest their money elsewhere, Ben Mizes, president and co-founder of Clever Real Estate, told The Mortgage Note.
“When rates were low, there was a much bigger spread in expected returns of taking a mortgage and investing the money elsewhere, like the stock market,” Mizes said.
As mortgage rates go up to 6% or 7%, that calculus changes and the appeal of investing money that could be put toward a home isn’t there, Mizes said.
So where do people who own their homes free and clear live?
Jonathan Lansner, a business columnist at Southern California News Group, recently reported that in 2021, 2.4 million households in the state were free and clear homeowners.
Texas had 2.9 million free and clear homeowners, while Florida was at 2.5 million.
West Virginia had the highest percentage of free and clear homeowners at 53%, while Mississippi was at 51%.
States with the highest percentages of free and clear homeowners tended to be in the middle of the country, according to an interactive U.S. Census map.
Jessica Lautz, deputy chief economist and vice president of research at the National Association of Realtors, told The Mortgage Note that the amount of time people stay in their homes matters when it comes to financial freedom.
“Owners are also staying in their homes for longer periods of time, allowing them to tackle their mortgage,” Lautz said.
Once that mortgage is paid down, or off, some homeowners are choosing to cash in. The 2023 Home Buyers and Sellers Generational Trends report shows that Baby Boomers now make up the largest generation of home buyers at 39%.
“The majority of them are repeat buyers who have housing equity to propel them into their dream home – be it a place to enjoy retirement or a home near friends and family. They are living healthier and longer and making housing trades later in life,” Lautz said in a statement.
While 78% of all buyers financed their home purchases this year, 32% of 58 to 67-year-olds did not.
Less than half – 49% – of homebuyers 68 to 76 years old financed their home purchases, according to the report.
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