The new retirement problem is Over 60 With Decades Left on the Mortgage.
A growing number of older Americans are carrying mortgage debt, and it will likely become more burdensome as the coronavirus crisis puts millions out of work and eats away at retirement accounts.
Many are still hurting from the financial crisis, which hit millennials when they were starting their careers and boomers during what were supposed to be their prime earning years.
In the U.S., some 9.18 million homeowners age 65 and over have mortgage debt, according to federal data analyzed by the Urban Institute. That’s up nearly 60% from 5.82 million a decade ago.
Housing Prices vs Wages vs CPI
This chart explains why the median mortgage debt has quadrupled since 1980.
Housing prices have dramatically outstripped wages and the CPI. That’s the problem for those who kept trading up or refinancing.
Those carrying a mortgage and depending on “inflation-adjusted” Social Security checks are likely to have a huge problem.
This setup is even more problematic for those unable to retire and now out of work due to the coronavirus.
The Huge Fear: How Do I Pay the Bills?
The huge fear now is How Do I Pay the Bills?
On April 6 in How High Will the Unemployment Rate Rise in April? I came up with an unemployment rate of 21-22% looking at job losses sector-by-sector.
In the last three week there have been 16.78 Million Unemployment Claims.
Unemployment claim analysis also leads to a 20% unemployment rate.
This is a huge debt deflation setup. How do the bills get paid?
This is yet another reason the Covid-19 Recession Will Be Deeper Than the Great Financial Crisis.
There will not be a V-shaped recovery.
Mike “Mish” Shedlock
This is NOT about Trump, Democrat or Republican. It is about stupid people making stupid decisions based on bad information and shoddy assumptions, wanting it now, wanting better, and bigger, and more of it, and ignoring the lessons of history. Few people think critically, ask ‘what if,’ or ‘what are the consequences’, aka planning ahead. Next year is not always an extrapolation of last year.
No mortgage or car payments, only installment debt I have is roughly $1000 financed at 0% for 2yrs of which runs thru December 2021. At 60 this is the first debt I’ve had in 20 years.
Most definitely, this is NOT “the” problem, because it’s not even “a” problem. Think about it — in higher years of earning, 40s and 50s Job1 is saving for retmt, Job2 is paying for kids’ college, Job3 is paying Principal off on the home loan. And there’s no money for Job3. But ppl will be ready for Retmt, and can downsize and move to lower tax state. Certainly true for us. We saved for retmt and never stopped. It was always Job1.
The problem is that when you have to sell a home in order to split the money to your divorce spouse then having to buy another home and homes are inflated , you can’t afford to do so unless you borrow money. Folks, we are screwed !
Forever the optimist you are.
How Trump Is Fueling a Corona Disaster
Donald Trump’s disastrous crisis management has made the United States the new epicenter of the global coronavirus pandemic. The country is facing an unprecedented economic crash. Are we witnessing the implosion of a superpower?
Any story that reports only absolute deaths and not per capital deaths is useless amateurish “reporting.”. And check out the head of public health in NYC, An affirmative action unwise Latina appointee. How many news channels are reporting on her disastrous management?
Stick to the topic, keep your incorrect/wrong opinions to yourself and others w TDS.
Ignorant question: in the US if one dies with an underwater house, does the mortgage lender generally just have to eat it? They cannot go after the rest of the estate, or the children, right?
If the house is underwater, the remaining debt would be subtracted from the estate’s value. If the entire estate is underwater, they cannot go after the ‘beneficiaries’.
Define state? If you include 401ks, IRAs and other retirement accounts, I don’t think that the debt holders can come after such accounts.
generally in the US, if it is a purchase loan, it is non-recourse loan, so the bank gets only the house and nothing else. if it is a refi, it is a recourse loan, so they can go after other assets of the borrowers. but it really depends on the actual contract signed
“Those carrying a mortgage and depending on “inflation-adjusted” Social Security checks are likely to have a huge problem.”
SS COLA adjustments are non-negative in the event CPI declines.
Obviously, it is better to pay off your mortgage before you retire if you depend on IRAs, as paying the mortgage would require more taxable withdrawals.
I (and my wife) paid off ours before I retired. However, when we divorced, I gave her my half of the house and bought another. I could have paid for the whole thing in one fell swoop but that would have meant a taxable $120k withdrawal.
I also have some ‘assets’ I have no intention of selling any time soon.
It’s not the mortgage, per se, but the equity and ability to sell. If you owe $400k on a $ 1 million home, and downsize to a $400k rambler, what is the problem exactly?
That sounds easy. Mish what is the problem with that?
If you owe nothing, what’s the problem?
If you own 3 houses free and clear what’s the problem?
If you don’t own a home what’s the problem?
How many people have a problem?
Question: in the next 5 years, where you gonna find somebody willing to pay more than $600K for your “$ 1 million home”?
Answer: you’re not.
….the 400K debt is REAL… the 1 million on the other hand is just an illusion that could be wiped out in a jiffy , recent history shows..
That’s highly unlikely.
I agree with Mish owing nothing or owning a home free and clear sounds more appealing to me. I suppose there are parts of the country where a $400K doesn’t buy much. However, if the $1 million home is to keep up with the Jones’s, I’ll pass.
Two things baffle me.
(1) Why someone at 65 plus would have a mortgage. Work 40 years and choose to have a house payment.
(2) How people believe inflation has only been 2 percent the last 10 years.
Unbelievable. Lol.
It shouldn’t baffle you and it is not a problem. See my comment above. I could tell you my numbers, but I’ll just say my actual real life #s prove my point.
We’re not at that point, yet; but I could see willingly moving from having a largely paid off mortgage to paying rent for a few reasons:
After a decade plus of a “managed” collapse,the US now runnin trillion dollar MONTHLY deficits with nothing (maybe less than nothing)to show for it other than soaring cost of living.Look on the bright side,that $1,5,10,20 100 dollar bills will be collectors items in a few short months!!!
It sounds like you are counting on inflation too much. Why do I have the feeling that everyone expects that the recent Congress stimulus package and the Federal reserve QE is creating inflation a la 1970s? The way, I see it, People , Corporations, States, Counties and Cities are already laden in debt. What is happening is just a debt reshuffling. As long as there is no debt restructuring, inflation will be almost nonexistent.
Mr LOL: False, there will not be 12T of addl debt this yr. And there may not be addl inflation just bc this 2T was printed, it won’t increase demand for food and other necessities. Same amnt of demand as in Jan
Maybe, but when you are forbidden to buy anything the price doesn’t really matter. Velocity of money has more to do with inflation than just printing a bunch of cash. Just ask Abe in Japan. If all that newly minted cash just goes into the mattresses of savers it won’t make any difference at all.
I suspect there will be a lot of issues with heloc’s as home values fall the loan to value ratio may force lenders to call on the borrower to make a large payment to get the loan to value ratio back in parameters.
I was going to do a heloc last week to buy an awesome property with a double wide and a creek running through it that was reduced from 280k to 200k but after talking about it with the banker I decided against it. He told me if the borrower can’t make the loan to value right ( if the value of collateral falls) they shut the line of credit down and roll it over into a term loan. When I asked how long the term he said he doubted it would be more than 10 yrs.
An interesting side note the agent listing the property told me he only had 2 offers and only one was cash. I’ve spoken with him several times over the last couple years about properties he was listing so I don’t think he was trying to get me excited and make an offer.
Nobody is buying right now and it will not get better anytime soon. Prices/values should fall accordingly.
BTW I’m in N Ca.
$70k doesn’t seem like a whole lot of debt to me. Median house value is around $320k.
Ok, so the total number is higher… but so is the total number of people reaching 65 and older. Has the percentage changed amongst retirees? If not, then this is fake news.
It doesn’t matter whether it’s wealth or debt. You can’t take it with you when you die. The most logical strategy (but least moral one) would be to have debt when you die so that the sweet life has been maximized.
That’s all fine and dandy till your maxed out, can’t pay now and end up homeless. Then what Einstein?
“If I have more than a nickel left when I die, you will know that I miscalculated.”
…debt and no children ….
The chart shows that earnings have indeed risen a bit more than the mean (if one extends an imaginary straight line outward beneath the red line). But hold on. Here in CA, I meet hundreds of new people a year, and, with the exception of health care workers, the ones “outperforming” the average Joe VERY often have income derived directly from the insane housing bubble itself. Be it realtors, decorators, “stagers” drone photography pilots, etc. How much of that income will be curtailed when housing begins its inevitable decline? I don’t care if the Fed is able to bail this particular bubble out, Millennials are not going stand for being perma-renters and debt slaves while Wall street continues to revel in their misery for too many more years. They will take their toys and go home, and by that I mean they will eventually succeed in electing Socialists to come in and ruin everything and start the game all over again (although they will think the socialists will be saving the day, at first anyway).
Re: “Housing prices have dramatically outstripped wages and the CPI. That’s the problem for those who kept trading up or refinancing.”
Not really. The real problem will be if housing prices crash. As long as prices remain high, they always have the option of selling.
If prices don’t revert to the mean (depicted perfectly by the other two lines on the chart) then it will be the first time in History that intervention has “saved” a bubble from bursting (they managed to finally arrest the decline in 2009, but by my estimation 85% of the burst had already occurred). I wonder if the Fed will find a way to backstop everybody’s housing losses, too.
Selling and then moving where? Better to stay put if you can afford the increase in property taxes and insurance. Somebody, somehow will have to pay for all this free money.
Hey, if I can get a zero down 30 year loan with a payment cheaper than rent when I’m 70, I’ll take it. That’s a bet the bank is almost certainly gonna lose.
DON T WORRY ! The Fed will buy houses like crazy, when necessary, they will…
There will be a V shaped recovery in stocks. Employment is another matter.
Bear market Rallys look at the 1929 -1939 charts, same as it always was.
We have a HELOC (since 2012) so I suppose we have “mortgage debt”.
We are ages 71/62.
But, the HELOC is $32K and retirement assets are $1400K (as of 01APR2020).
With a 3% interest rate, I am not in a hurry to pay it off. Especially now as I believe that our stock assets will increase faster than 3%/yr over the next 5 years.
The HELOC also serves as a tiny mental reminder to my wife to be more careful with spending.
You “believe” your stock assets will increase at some assumed rate over the next x years? Based on what analysis? Oh, just because you hope they do.
Not hope, but expectations based upon history.
I am an optimist and not a pessimist.
I would pay the debt and call it the day. I am so glad we paid off the house during last Thanksgiving week. It felt a big relief.
No better feeling (at least in finances) than being debt free.
Until you or your spouse get sick or infirmed and can no longer care for your house. It doesn’t take much… a fall, a minor traffic accident, even (dare I say it) Wuhan flu. Many of the survivors of the flu are probably going to have long term lung damage, especially if you’re in the older age group. Is your insurance policy going to cover long term medical care at home? Most insurers aren’t even offering that type of coverage anymore. Now instead of having a paid off house you can sell in a hurry, you have to hold out for the “right price,” which in a declining market won’t be easy to find.
Pay off the debt and be done with it.