Once upon a time, Susan Apel and Keith Irwin thought they had their retirement housing situation figured out. They had purchased a spacious four-bedroom house on two acres in Lebanon, New Hampshire, 24 years ago and had diligently paid off the mortgage. They believed that the substantial home equity they had accumulated – estimated at around $700,000 – would allow them to downsize into a more manageable home when the time came. Now, that time has arrived. Apel, a retired law professor, is finding it difficult to navigate stairs. Irwin, 71, is weary of yard work and snow shoveling, and finding reliable workers to assist with these tasks has become increasingly challenging. They recognize the signs of aging and have begun searching for “a nice two-bedroom condo with a little den, all on one floor.” However, their search has proven futile. Local developers are primarily constructing four-level townhouses, presenting even more stair-climbing obstacles. The few suitable one-floor homes that do become available are quickly snapped up, often by city dwellers who have fled to the suburbs during the pandemic. Escalating housing prices, fueled by the influx of city buyers, have made the couple’s dream of downsizing seem unattainable. One unit they recently viewed was priced at $950,000 and required significant renovations. Even “tiny shoe boxes” are commanding prices of $600,000. Apel expresses her frustration, saying, “We were very grateful to live in this lovely place and to have paid off our house. It never occurred to us that it didn’t give us the ability to move out of it.” Traditionally, a large proportion of older adults have been homeowners, with around 80% owning their homes. However, the idea that a mortgage-free home serves as a reliable retirement nest egg is becoming less certain. Homeownership, once considered an unqualified benefit for seniors, is now more nuanced. Linna Zhu, a research economist at the Urban Institute, poses the question, “Are they aging in place, or stuck in place? Do we need to rethink this so-called American dream? It worked for previous generations, but does it still work today?” The proportion of older adults carrying mortgage debt has been steadily increasing. From 1989 to 2022, the percentage of homeowners aged 65 to 79 with mortgages climbed from 24% to 41%, according to the Harvard Joint Center for Housing Studies. The amount they owed has also risen significantly, from $21,000 to $110,000 (adjusted for inflation). David Turoff, 73, a veterinarian in Placerville, California, is among the growing number of older adults with mortgage debt. He still owes $180,000 on his two-bedroom home, a result of refinancing to sustain his practice after the 2008 recession. While he acknowledges the risk involved, he believes it was a necessary step. Even among homeowners in their 80s, 31% have mortgages. The combination of larger mortgage balances, higher interest rates, property taxes, insurance, and other costs has led to 43% of older homeowners with mortgages being “cost burdened,” meaning they spend 30% or more of their income on housing-related expenses. While home equity has also increased, with a median jump of $80,000 to $250,000 in just three years, many older homeowners are hesitant to tap into this resource. Jennifer Molinsky, who directs research on housing and aging at the Harvard center, describes the “dual idea of homeownership” among older adults. Accumulating housing wealth is seen as a safety net, a cushion for later life. However, there is also a strong desire to preserve it for inheritance or emergencies. Accessing home equity can also be challenging. Federally insured reverse mortgages, known as Home Equity Conversion Mortgages (HECMs), involve high upfront costs and substantial paperwork. In 2022, only 64,500 older applicants received reverse mortgages through the federal program. Other methods of accessing home equity have become more difficult as interest rates have returned to more typical levels. Cash-out refinancing by homeowners over the age of 65 dropped significantly from 941,000 loans in 2021 to 600,000 in 2022. Molinsky explains that these options are “not as easy to get or as cost-effective as they were.” Older borrowers are often denied refinancing loans due to lower retirement incomes. Home equity lines of credit (HELOCs) have also become less accessible to seniors and less attractive due to higher interest rates. Furthermore, maintenance costs tend to rise as houses age, adding to the financial burden for older homeowners. The lack of suitable and affordable housing for older adults exacerbates the challenges faced by those wishing to downsize, even for those with substantial housing wealth. Molinsky observes, “You can get locked in when you’d like to move on.” Older Black and Hispanic homeowners are particularly vulnerable due to the concentration of their wealth in their homes. While having a mortgage is not necessarily an issue if balanced by other assets, minority homeowners often have fewer liquid assets compared to white homeowners. Anthony Webb, a senior fellow at the New School for Social Research, emphasizes that “This is a story of widening inequality.” Many Black and Hispanic homeowners have significant assets tied up in their homes, but it may be difficult for them to maintain ownership over time. Policymakers and experts recognize the need to address the housing challenges faced by older adults. Improving the HECM program, broadening the criteria for refinancing and HELOC loans, and encouraging the development of more age-appropriate housing options are potential solutions. Despite the challenges, homeownership remains a valuable asset for older adults, providing greater protection against rising housing costs compared to renting. Home equity can also help fund long-term care expenses. However, the experiences of Apel and Irwin highlight the need for more flexible and accessible housing options for the aging population.
Housing Woes for Older Adults: Mortgages, Home Equity, and Retirement Planning
