Retirement Math: Median Mortgage Debt for those Over 65 Has Quadrupled

Mish

The number of those age 65 and older and the size of their debt have risen. It's the amount of debt that's the killer.

The new retirement problem is Over 60 With Decades Left on the Mortgage.

A growing number of older Americans are carrying mortgage debt, and it will likely become more burdensome as the coronavirus crisis puts millions out of work and eats away at retirement accounts.

Many are still hurting from the financial crisis, which hit millennials when they were starting their careers and boomers during what were supposed to be their prime earning years.

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.

Housing Prices vs Wages vs CPI

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This chart explains why the median mortgage debt has quadrupled since 1980.

Housing prices have dramatically outstripped wages and the CPI. That's the problem for those who kept trading up or refinancing.

Those carrying a mortgage and depending on "inflation-adjusted" Social Security checks are likely to have a huge problem.

This setup is even more problematic for those unable to retire and now out of work due to the coronavirus.

The Huge Fear: How Do I Pay the Bills?

The huge fear now is How Do I Pay the Bills?

On April 6 in How High Will the Unemployment Rate Rise in April? I came up with an unemployment rate of 21-22% looking at job losses sector-by-sector.

In the last three week there have been 16.78 Million Unemployment Claims.

Unemployment claim analysis also leads to a 20% unemployment rate.

This is a huge debt deflation setup. How do the bills get paid?

This is yet another reason the Covid-19 Recession Will Be Deeper Than the Great Financial Crisis.

There will not be a V-shaped recovery.

Mike "Mish" Shedlock

Comments (68)
No. 1-22
davebarnes
davebarnes

We have a HELOC (since 2012) so I suppose we have "mortgage debt".
We are ages 71/62.
But, the HELOC is $32K and retirement assets are $1400K (as of 01APR2020).
With a 3% interest rate, I am not in a hurry to pay it off. Especially now as I believe that our stock assets will increase faster than 3%/yr over the next 5 years.
The HELOC also serves as a tiny mental reminder to my wife to be more careful with spending.

anoop
anoop

There will be a V shaped recovery in stocks. Employment is another matter.

Sechel
Sechel

Everything about mortgage debt has exploded. Terms, balances and use of adjustable rates. At least we backed away from IO's and Neg-am products a bit. 50 years ago more took out 10 & 15 year terms.

Carl_R
Carl_R

Re: "Housing prices have dramatically outstripped wages and the CPI. That's the problem for those who kept trading up or refinancing."

Not really. The real problem will be if housing prices crash. As long as prices remain high, they always have the option of selling.

JG1170
JG1170

The chart shows that earnings have indeed risen a bit more than the mean (if one extends an imaginary straight line outward beneath the red line). But hold on. Here in CA, I meet hundreds of new people a year, and, with the exception of health care workers, the ones "outperforming" the average Joe VERY often have income derived directly from the insane housing bubble itself. Be it realtors, decorators, "stagers" drone photography pilots, etc. How much of that income will be curtailed when housing begins its inevitable decline? I don't care if the Fed is able to bail this particular bubble out, Millennials are not going stand for being perma-renters and debt slaves while Wall street continues to revel in their misery for too many more years. They will take their toys and go home, and by that I mean they will eventually succeed in electing Socialists to come in and ruin everything and start the game all over again (although they will think the socialists will be saving the day, at first anyway).

Six000mileyear
Six000mileyear

It doesn't matter whether it's wealth or debt. You can't take it with you when you die. The most logical strategy (but least moral one) would be to have debt when you die so that the sweet life has been maximized.

Sechel
Sechel

It's not just first liens, its second liens, credit cards, auto loans etc. The economy has been credit fueled for decades. Maybe some of those seniors have equity in their home . The younger generations do not.

Sechel
Sechel

Previous generations inherited the wealth of their parents when they died an they sold their homes. That will cease to be the case and nobody is talking about the implications.

Iowan
Iowan

Ok, so the total number is higher... but so is the total number of people reaching 65 and older. Has the percentage changed amongst retirees? If not, then this is fake news.

shamrock
shamrock

$70k doesn't seem like a whole lot of debt to me. Median house value is around $320k.

Russell J
Russell J

I suspect there will be a lot of issues with heloc's as home values fall the loan to value ratio may force lenders to call on the borrower to make a large payment to get the loan to value ratio back in parameters.

I was going to do a heloc last week to buy an awesome property with a double wide and a creek running through it that was reduced from 280k to 200k but after talking about it with the banker I decided against it. He told me if the borrower can't make the loan to value right ( if the value of collateral falls) they shut the line of credit down and roll it over into a term loan. When I asked how long the term he said he doubted it would be more than 10 yrs.

An interesting side note the agent listing the property told me he only had 2 offers and only one was cash. I've spoken with him several times over the last couple years about properties he was listing so I don't think he was trying to get me excited and make an offer.

Nobody is buying right now and it will not get better anytime soon. Prices/values should fall accordingly.

BTW I'm in N Ca.

lol
lol

After a decade plus of a "managed" collapse,the US now runnin trillion dollar MONTHLY deficits with nothing (maybe less than nothing)to show for it other than soaring cost of living.Look on the bright side,that $1,5,10,20 100 dollar bills will be collectors items in a few short months!!!

TumblingDice
TumblingDice

Two things baffle me.
(1) Why someone at 65 plus would have a mortgage. Work 40 years and choose to have a house payment.
(2) How people believe inflation has only been 2 percent the last 10 years.
Unbelievable. Lol.

Blurtman
Blurtman

It's not the mortgage, per se, but the equity and ability to sell. If you owe $400k on a $ 1 million home, and downsize to a $400k rambler, what is the problem exactly?

wootendw
wootendw

"Those carrying a mortgage and depending on "inflation-adjusted" Social Security checks are likely to have a huge problem."

SS COLA adjustments are non-negative in the event CPI declines.

Obviously, it is better to pay off your mortgage before you retire if you depend on IRAs, as paying the mortgage would require more taxable withdrawals.

I (and my wife) paid off ours before I retired. However, when we divorced, I gave her my half of the house and bought another. I could have paid for the whole thing in one fell swoop but that would have meant a taxable $120k withdrawal.

I also have some 'assets' I have no intention of selling any time soon.

bradw2k
bradw2k

Ignorant question: in the US if one dies with an underwater house, does the mortgage lender generally just have to eat it? They cannot go after the rest of the estate, or the children, right?

numike
numike

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Jdhur
Jdhur

The problem is that when you have to sell a home in order to split the money to your divorce spouse then having to buy another home and homes are inflated , you can’t afford to do so unless you borrow money. Folks, we are screwed !

StvOhh
StvOhh

Most definitely, this is NOT “the” problem, because it’s not even “a” problem. Think about it — in higher years of earning, 40s and 50s Job1 is saving for retmt, Job2 is paying for kids’ college, Job3 is paying Principal off on the home loan. And there’s no money for Job3. But ppl will be ready for Retmt, and can downsize and move to lower tax state. Certainly true for us. We saved for retmt and never stopped. It was always Job1.

MNPPL
MNPPL

No mortgage or car payments, only installment debt I have is roughly $1000 financed at 0% for 2yrs of which runs thru December 2021. At 60 this is the first debt I've had in 20 years.

Sechel
Sechel

Nothing tells the kids how much you love them like re-mortgage the house, taking out a HELOC or HECM loan.

Captain Ahab
Captain Ahab

This is NOT about Trump, Democrat or Republican. It is about stupid people making stupid decisions based on bad information and shoddy assumptions, wanting it now, wanting better, and bigger, and more of it, and ignoring the lessons of history. Few people think critically, ask 'what if,' or 'what are the consequences', aka planning ahead. Next year is not always an extrapolation of last year.


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