The share of Americans who are mortgage-free is at an all-time high
bloomberg.com
bloomberg.com
Part of the reason affordability is so bad is that we have one of the largest, wealthiest population of non-working adults (retirees) that has ever existed in the world ever. And US financial policy specifically encouraged real-estate to be a primary vehicle for that wealth.
Younger generations just understand that the system is rigged and have looked for other methods (socialism) to even the playing field again. They aren't wrong in their goals, but current proposals are sadly ignorant.
This is an interesting topic that doesn't seem like it gets a proportional amount of attention. What becomes of those assets as that generation gets too old to live in their own homes or dies? For retirees that have chosen to "age in place" in their oversized homes (i.e. built for 4-5 people, but now holding 2), what becomes of those properties. This is one way the housing "crisis" could sort itself out.
Until the old die, which they inevitably do, and then the transfer completes the cycle back to the young.
>largest, wealthiest population of non-working adults (retirees)
What does that have to do with affordability?
Most of the current income of these "retirees" is based on the work they did earlier in life (Soc. Security[0], 401k/IRA withdrawals). Further, you seem to be conflating "non-working" with being non-paid. Many of these retirees are providing unpaid daycare to grandchildren, unpaid assisted living service to other elder family members, or volunteer positions in the community.
[0]Yes, I understand that today's Soc. Security is funded mostly by today's wage earners, but not all of it. On an inflation adjusted basis, a good chunk of Soc. Sec. benefit is just the taxpayer's own FICA taxes that have been earning interest over time coming back to them, as well as the income taxes they pay on those very same Soc. Security benefits.
It will transfer to the middle aged who will become the old soon. It won't cycle back to the young.
My great granddad died at 90, my grandad is 93.
Lord knows how old I'll be when I inherit...
It will transfer into the health care system and wealthy share holders.
All but the wealthiest of retirees who make it into their 80’s and 90’s will spend any money they have on healthcare, until they are broke and then go on Medicaid.
The ‘living with your parents’ meme may be tough - but not nearly as tough as having homeless parents!
So there's a pretty decent chance that the old dying are leaving the wealth to the old as well.
There are some families where relationships with grandkids are much more positive than with direct descendants. Families where middle aged don’t need any help, but grandkids could always appreciate a boost to the college fund. Families where the bridges have been burned badly and the money is going to the charity just because. Families where grandpa is on the reverse mortgage busy traveling the world, etc.
> Many of these retirees are providing unpaid daycare to grandchildren, unpaid assisted living service to other elder family members, or volunteer positions in the community.
Agreed! But at a much lower rate on average than 40hrs/week!
No, most of the boomer wealth will be transferred to private equity (who now own the majority of long-term care facilities), the hospital executives, the health insurance executives, big pharma executives, and a good number of doctors on the gravy train.
The next generation will get very little of that wealth.
> On an inflation adjusted basis, a good chunk of Soc. Sec. benefit is just the taxpayer's own FICA taxes that have been earning interest over time coming back to them,
When Social Security was created, the first recipient started receiving checks in 1940, 5 years after the program was created (https://socialsecurityreport.org/a-fascinating-look-at-socia...). It may be politically expedient to spread the untruth that it is an investment fund, where the old gets back what they put in after investments. But in reality, Social Security seems to be just another tax system, taxing the young and working, to pay for the old and unhealthy.
Because baby boomers form the largest demographic group in the country, they will continue to extract everything from the younger generations as they grow older, then they will give all that money away to billionaires of private equity funds who own the majority of long-term care facilities in the country.
My mortgage is at 2.25% and my savings account gives me 5%. At this point (especially with the market not really doing awesome) why wouldn't I just dump any extra money I have into my savings? I mean that's not really a question and it's what I've been doing for a while now. Even before they raised interest rates I was getting 3% on my savings.
A part of me would love to throw money at my principal but oddly paying off that debt would be financially irresponsible in the long run.
This is a great situation to be in. You should not be making any extra mortgage payments that you don't have to.
Let's pretend you have your house paid off. Would you borrow against your fully paid-off house at 2.25% interest to put into a savings account at 5% return? The terms involve someone else owning part of your house, and could force you out if they don't get paid. Does that sound like a good plan to you? If you don't think it is, that's risk, but that's what you're effectively doing right now.
Sure, that seems rather savy to me. The only problem is I can’t guarantee 5.5%
If that 5% is in treasuries and I can pay off my loan at any time without penalty? I'm not really seeing the downside. (Ignoring any tax effects, etc.) There's arguably some value to owning the house totally free and clear--though even that isn't ever really the case given property taxes, etc.
It makes no sense to pay off debt with a significantly lower interest rate than the sovereign interest rates for the currency it is denominated in. It is the closest thing to "free money" as exists. I know several people that could pay off their house any time they feel like it but don't because their interest rates are lower than US treasury rates. It is the financially prudent thing to do. If they wake up on day and decide they don't want a mortgage, they still have that option.
1. Minimize financial risk. There are no risk-free investments. There is no guarantee I'll have a high income in the future. And there is no guarantee that the value of my home will remain higher than my mortgage. 2. Peace of mind 3. I don't want to deal with mortgage loan servicers. My loan seems to get sold every couple years and I have to log into sketchy, outdated websites with web addresses like phhloansphereservicingdigital.bkiconnect.com.
2. I understand but see #1
3. This is completely fair but for 2.75% gain I'll put up with that
Ah, here we go, according to Forbes [0], only 23% of home "owners" don't have a mortgage, as in they actually own their homes. This is among the lowest rate of actual ownership in the first world.
Conclusion from the Forbes article:
It seems U.S. policy maximizes mortgage-ownership, not home-ownership.
I don't know if this is as big a problem as it sounds. I could pay off my mortgage next week if I wanted to, but "renting" money from a bank for 2.6% while getting 5.4% on short-term Treasury bills seems a lot more financially responsible than paying down a mortgage just because it feels good to be debt-free.
Certainly not everyone can do this, and there are lots of people (especially those who are buying now) with interest rates that are higher than what they can safely and predictably make to offset that cost. But just saying "X% of American homeowners carry a mortgage" doesn't tell the whole story.
Mortgages form a low risk/return investment (in theory anyway) which frees capital for medium risk/return investments, especially for young people who can benefit from the higher long term returns. Once they get old, they can transition their investments to low risk, such as mortgages as part of various investment funds.
This makes capital more liquid and generally improves the efficiency of the economy (in theory anyway, if you ignore bad actors doing subprime mortgages/etc)
(if you're having problems with this link, read first: https://news.ycombinator.com/item?id=38294214)
We own the absolutely cheapest house in town. But it drives me nuts that the house has tripled in "value" since we bought it a decade ago, just because of the market. Our child is still a teen, but having a home passed down will greatly help secure their future, should we both be able to avoid medical bankruptcy that gets so many Americans on their way to aging out.
Missing from this story is a fourth, the even less fortunate group: the rapidly growing number of Americans who have never owned a home and know better than to try. The growth of this group is likely what's causing the growth in the relative proportion of home owners who are mortgage free.
Combined with remote work…
shows the overall home ownership has been going up since 2016, currently around 66% though still lower than peak 69% in 2014, but higher than 63% in 1965.
>"The homeownership rate is the proportion of households that is owner-occupied."
All the recent places I’ve lived, the plausible mortgage costs if I had bought it would be 2-3x the rent I’m paying for the place. That was before the interest rate hikes. It’s only gotten more favorable since.
Not necessarily a great long term strategy (over decades), but in the short term it’s pretty awesome.
Council tax, which is the sort of local tax most similar to the one you mention is about £2k a year on a large 4 bed house - and council tax is pretty flat - the least you can pay is about £1k - the most expensive houses you still only pay about £3k or less.
So which part of my reading comprehension failed? :-)