Paid off, paid down and underwater – a survey of equity in U.S. real estate

Posted: September 8, 2016 at 7:22 am

South and North pole and all things relatedAre you a homeowner? If you are, there’s a good chance you still write a check to your mortgage company every month, as new surveys reveal that only about 1 in 3 owner-occupied homes have been paid off and are mortgage-free. But if you’re like me, you may have a list of questions when you hear that statistic, like is that a good number when we look at historical averages? What about non-owner occupied homes? Do we have a lot more equity since the real estate bust and Great Recession years? And how many homeowners are still seriously underwater in equity?

In this two-part blog series, we’ll examine the data on homeowners and real estate that is paid off, paid down, or underwater.

Paid off:

By crunching the data on our 132.8 million housing units, the American Community Survey learned that 29.3% (about one in three) owner-occupied housing units is now mortgage free, or 21 million homes.

How does that measure up historically? In fact, our current 29.3% proportion of paid-off homeowners is the lowest rate on record since statistics started being documented in 1960.

2000     30% of all owner-occupied housing units were mortgage free.

1990     35% of all owner-occupied housing units were mortgage free.

1980     35% of all owner-occupied housing units were mortgage free.

1970     39% of all owner-occupied housing units were mortgage free.

1960   42% of all owner-occupied housing units were mortgage free.

But if we factor in that 56% of all housing units are non-owner occupied, data shows that approximately 20% of U.S. homeowners don’t owe mortgage debt anymore.

(That essentially shows the distinction between occupying homeowners compared to homes that are paid off.)

In California, San Bernardino has the lowest percentage of mortgage-free homeowners, at 19.7%, with San Diego the highest at 21.5%.

As we might expect, seniors, retirees and the elderly were the most likely to own their own homes outright, at a rate of 62.7% for those 74-84 years old and 77.6% for people 85 and older.

But one surprising statistic was that very young homeowners own their homes without mortgage debt at a rate higher than the national average. In fact, 34.5% of homeowners 20-24 years old owned free and clear, most likely made up of young millionaires and tech entrepreneurs, as well as Millenials that received serious financial help from their parents.

You might think that most homes that are currently in foreclosure are seriously underwater, but in fact only 28.8% of all properties currently in foreclosure were seriously underwater as of the end of Q1 2016. That’s significantly down from 35.1% just a year ago.

The large metro areas with the highest percentage of paid-off homes include:

  • Pittsburgh
  • Tampa
  • New York
  • Cleveland
  • Miami

Conversely, the metro areas with the lowest percentage of mortgage-free homeowners include:

  • Washington, Atlanta
  • Las Vegas
  • Denver
  • Charlotte
  • North Carolina

Interestingly, there is not a huge correlation between high credit scores and being mortgage free. In fact, only 15% of homeowners with credit scores 850 or higher had paid off their home loan.

Paid down:

At the end of Q1 2016, 12,335,651 U.S. properties were equity rich, meaning they had a loan-to-value ratio of 50% or less. Those 12.3 million equity rich properties make up 22% of all properties that still have a mortgage.

That’s a significant increase of almost 1.3 million from the 11,053,055 equity rich properties a year earlier in Q1 2015, which represented 19.8% of all mortgaged properties.

Among owner-occupied homes that are not paid off, the median mortgage amount is $122,000. (This includes second mortgages and home equity loans, as well.)

U.S. consumers owe $8.37 trillion in mortgage debt as of 2015. To put it in perspective, we owe $712 billion on credit cards $1.07 on auto loans and $1.26 in student loans.

That’s the highest amount of mortgage debt since 2010, with a peak of $14.72 trillion in 2008.

Among all homeowners with a mortgage, the median mortgage debt is $171,775.

According to the U.S. Census, the average home equity among homeowners that aren’t underwater (by age):

$20k equity     Less than 35 years old

$40k                   35-44

$70k                   45-54

$97k                   55-64

$130k               65 and up

The total number of equity rich properties increased by almost 1.3 million since just one year ago.

The States with the highest share of equity rich homeowners are:

36.9%     Hawaii

33.4%     California

33.2%     Vermont

33.0%     New York

29.0%     Maine

The major metro areas with the highest share of equity rich homeowners include:

52.3%     San Jose, California

46.6%     San Francisco, California

37.8%     Honolulu, Hawaii

36.3%     Los Angeles, California

31.5%     Portland, Oregon

The fastest growing metro areas for equity rich homeowners includes:

  • Dallas, Texas (+46%)
  • Austin, Texas (+39%)
  • Denver, Colorado (+37%)
  • Albuquerque, New Mexico (+37%)
  • Provo, Utah (+37%)

***

Look for part two of this blog soon, with data and analysis on homeowners that are underwater on their properties.

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