The Clearing House - Corporate Changes in Payment Practices - September 2023

Record-High Share of Americans Have Paid Off Their Homes 

Mortgage, home ownership, real estate

An increasing number of Americans have realized the dream of owning a home without the burden of a mortgage. 

Nearly 40% of homeowners in the country now own their homes outright, marking a record high in mortgage-free ownership as of 2022, Bloomberg reported Friday (Nov. 18). 

This trend is particularly prominent among baby boomers, who capitalized on low interest rates to refinance their mortgages, according to the report. By refinancing multiple times over the years, these homeowners lowered their interest rates and accelerated their loan payments. Consequently, they now enjoy the freedom to age in place or relocate to more desirable locations. 

Interest rates on 30-year mortgages plummeted into single digits in the early 1990s and continued to decrease until earlier in this decade, the report said. This allowed homeowners to refinance and switch to shorter-term mortgages without significantly increasing their monthly payments. 

The number of mortgage-free homes in the U.S. soared by 7.9 million from 2012 to 2022, reaching a total of 33.3 million, per the report. This growth is largely driven by the aging baby boomer population, who are acquiring or holding onto a larger share of homes overall. In fact, individuals aged 65 or older owned almost 33% of owner-occupied homes in 2022, a 4.6-percentage-point increase from a decade earlier. 

While some mortgage-free boomers choose to remain in their homes, many are opting to sell their properties in expensive regions and utilize the proceeds to purchase homes in more affordable areas, according to the report. 

The Sun Belt has witnessed a significant surge in new home construction, with a high proportion of mortgage-free homes, the report said. In fact, 29% of the 4.1 million new homes built in the U.S. from the start of the pandemic through 2022 were located in Florida and Texas. 

Despite some personal finance professionals advising against paying off a mortgage early, favoring investment instead, many homeowners find intrinsic happiness and reduced stress in being mortgage-free, per the report. 

The experience of those who purchased their homes years ago is far different from those who are looking to do the same today. 

It was reported in September that new homes are “completely unaffordable” now that 30-year fixed-rate mortgages carry rates of around 7%, compared to 3% in 2021. 

Purchasing a home right now is “completely unaffordable for the typical American household because you’re mixing the higher borrowing costs with the high prices,” Mark Zandi, chief economist at Moody’s Analyticstold The Wall Street Journal in September.