The amount of mortgage debt in the United States is surprisingly low. Though the raw number of outstanding mortgages increased during the second quarter of 2019 to reach beyond the level met at the peak prior to the so-called Great Recession, according to the Federal Reserve of New York the number of outstanding mortgages relative to home values (not including home equity lines of credit) was a lower percentage of the whole than in 2009, when it reached a high of 54.7 percent. Indeed, in the first quarter of 2019 this number hovered at just around 35.4 percent. Why should this be the case, particularly when one considers the rather recent ramping-up of real estate values throughout the nation (including in the area surrounding Phoenix)?
For one thing, home equity lines of credit (HELOCs) are not as common as they have been in years past. Ten years ago, the volume of HELOCs stood at around $714 billion. By the second quarter of 2019 they had fallen to $399 billion.
At the same time, the portion of homeowners who have a mortgage is in decline. From 2008 to 2017, the percentage of homeowners paying on a mortgage fell from 68.4 to 62.9 percent. This is the lowest percentage we have seen since 2005. Another way of looking at this is to consider that owner-occupied homes that have no mortgage have risen in tandem during this period to 37.1 percent.
Why? For one thing, there was a strong trend toward all-cash sales in the years just after the Great Recession—and since that time households have re-focused their attention on reducing debt. Meanwhile, the credit conditions for mortgages has remained historically tight.
Just as importantly, the largest proportion of homeowners skews strongly toward the Baby Boom generation (for our purposes those age 65 and older)—a large cohort whose period of homeownership extends over decades, and who are much more likely as a result to have already paid off their mortgage debt. And all indications are that they are for the most part holding on to their homes rather than moving—creating a shortage in existing inventory on the market (even if that inventory did briefly increase somewhat in the spring).
All of this adds up to higher prices and lower proportional mortgage debt.
If you’re looking to buy one of the homes that has made it to market in Scottsdale or anywhere else in the state of Arizona, you’ll need an experienced attorney with strong scruples on your side to help you gain clear title and help mitigate risks. Provident Law’s real estate attorneys represent parties on either side of real estate and financing transactions, including buyers, sellers, landlords, tenants, lenders, borrowers, trustees, guarantors, shareholders, partners, and others. We structure, negotiate and document a variety of real estate and financing transactions, such as leases, purchase and sale agreements, loans and development agreements for a variety of commercial and residential projects. Contact us for more details.
Christopher J. Charles is the founder and Managing Partner of Provident Law ®. He is a State Bar Certified Real Estate Specialist and a former “Broker Hotline Attorney” for the Arizona Association of REALTORS ® (the “AAR”). Mr. Charles holds the AV ® Preeminent Rating by the Martindale-Hubbell Peer Review Ratings system which connotes the highest possible rating in both legal ability and ethical standards. He serves as an Arbitrator and Mediator for the AAR regarding real estate disputes; and he served on the State Bar of Arizona’s Civil Jury Instructions Committee where he helped draft the Agency Instructions and the Residential Landlord/Tenant Eviction Jury Instructions.
Christopher is a licensed Real Estate Instructor and he teaches continuing education classes at the Arizona School of Real Estate and Business. He can be reached at Chris@ProvidentLawyers.com or at 480-388-3343.