Boomers Repairing their Mortgage Finances
The housing market collapse more than a decade ago inflicted a lot of financial damage on baby boomers nearing retirement. But a new study finds that some have been trying to make up for lost time by rapidly reducing their mortgage debt.
Since the Great Recession, the boomers who were born in the 1950s – they are now in their 60s – have paid down more than 40 percent of their remaining mortgages and home equity loans, on average – a much faster pace than their parents did at that age.
Not all the damage from the Great Recession can be repaired, however, because many people lost their homes in the wave of foreclosures. For example, the homeownership rate for the boomers born in the early 1950s quickly dropped slightly more than 10 percentage points after the housing crisis, to 67 percent, where it remained until 2016, the last year of data in the study.
Since then, the U.S. homeownership rate has increased but is still below the pre-recession peak.
The impact of the housing crisis was far less dramatic for Americans born in the early 1930s. Their homeownership rate dipped 2 percentage points right after the crisis, to a relatively high 76 percent, according to Jason Fichtner of Johns Hopkins University.
The decline in boomers’ homeownership leaves fewer of them with housing wealth to fall back on when they retire.
They have also fallen behind in fully paying off their mortgages, which would eliminate their monthly payments and make the house a low-cost place to live. Just half of the boomers born in the early 1950s who held onto their homes during the Great Recession own them outright – two-thirds of the people born in the early 1930s had paid off their mortgages by that age.
However, the share of boomer households that have paid off their mortgages has increased recently as boomers have stepped up their efforts to reduce debt. While the study predates the economic slowdown caused by COVID-19, the pre-pandemic trend is encouraging, Fichtner said.
To read this study, authored by Jason Fichtner, see “Home Ownership and Housing Debt in Retirement: Financial Asset for Consumption Smoothing or Albatross Around the Necks of Retirees?”
The research reported herein was derived in whole or in part from research activities performed pursuant to a grant from the U.S. Social Security Administration (SSA) funded as part of the Retirement and Disability Research Consortium. The opinions and conclusions expressed are solely those of the author and do not represent the opinions or policy of SSA, any agency of the federal government, or Boston College. Neither the United States Government nor any agency thereof, nor any of their employees, make any warranty, express or implied, or assumes any legal liability or responsibility for the accuracy, completeness, or usefulness of the contents of this report. Reference herein to any specific commercial product, process or service by trade name, trademark, manufacturer, or otherwise does not necessarily constitute or imply endorsement, recommendation or favoring by the United States Government or any agency thereof.