Mortgage debt at peak, but share of homeowners with loans sure isn't

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Mortgage debt hit an all-time high, but curiously, the share of homeowners has fallen to a low not seen in 13 years, according to the Urban Institute.

To see why this might be, the organization examined the household-owned value of the total U.S. housing market, which also has reached a peak at $26.12 trillion. This represents a considerable jump from the precrisis high of $22.68 trillion achieved in 2006.

The household-owned value is made up of two main elements: $10.36 trillion in outstanding mortgage debt (including home equity lines of credit) and $15.76 trillion in home equity, according to the Urban Institute analysis. (Non-HELOC mortgage debt outstanding and home equity are both at peaks.)

This shows that home equity as a share of aggregate home values is now at more than 63%, up from almost 37% in 2009; and points to why the percentage of homeowners with mortgages is at 62.9%, the lowest this figure has been since at least 2005.

"The shifting composition of owner-occupied households with and without a mortgage owes to several reasons, including the surge in all-cash sales in the years immediately following the recession, households' focus on debt reduction, and mortgage credit conditions that remain tight," said an Urban Institute blog.

The shift can also be credited to a generational component, as older households are more likely to have paid off their mortgage loans. Though the percentage has steadily increased, only 38% of consumers 65 and older had a mortgage in 2017, compared with 80% for those ages 35-54.

A few factors will shape the mortgage market in terms of whether or not the share of owner-occupied households with home loans will continue its descent. Among those are the pace at which first-time purchasers buy a house, affordability, credit availability and the health of the economy, according to the Urban Institute.

This highlights younger borrowers as more important to lenders.

Because elderly households are among those least likely to have a mortgage (and most likely to have already paid one off), lenders may aim to reach more borrowers in younger generations to sustain business.

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Mortgage defaults Purchase First time home buyers Housing market Home prices Servicing Credit scores Urban Institute