Who and Where Are the Mortgage-free Households?

THE UNITED STATES is experiencing one of the longest economic expansions in the country’s history. While the expansion continues to be resilient, there is a small but growing possibility of a recession in the not-too-distant future. Similarly, the Washington, D.C. metro area continues to grow, but at its slowest pace in the past five years. In the previous recession and related global financial crisis, housing markets, including the D.C. region, got hammered. Housing values in the D.C. region dropped approximately 38 percent from peak values in 2006 through a low in early 2009, and the number of mortgage defaults soared. Of course, owning a home free and clear of mortgage debt is the only guarantee against default. Because of high housing prices, the D.C. region has a smaller percentage of owner-occupied dwellings unencumbered by a mortgage compared to the rest of the country. But where are the households located that have managed to achieve the enviable position of being mortgage-free within the region?

OWNER HOUSEHOLDS BY MORTGAGE STATUS

While there are approximately 350,000 owner-occupied households in the NVAR region, slightly less than 23 percent of these homes are owned free and clear of a mortgage (Table 1) leaving about 77 percent with mortgage debt.

Table 1. Owner Households by Mortgage Status

Source: Average of American Community Survey (ACS) 1-Year Estimates 2015-2017

 

The percent of owner households with a mortgage varies among communities within the NVAR region (Maps 1A, 1B). Areas with the lowest percent of owner households with a mortgage are in McLean, Great Falls, and Falls Church (70.8 percent) and the area around Annandale (71.9 percent). Despite having among the most expensive housing in the NVAR region, these communities include the largest number of homes owned free and clear of mortgage debt. The communities that have the highest share of owner households paying a mortgage each month are the farthest from the Washington, D.C. central business district. More than 81 percent of owner households pay a mortgage in the southern and western areas of Fairfax County ranging from West Springfield south to Lorton and east to Centreville, Chantilly and Reston.

 

Map 1. Owner Households by Mortgage Status
1A. All Households; 1B. 65+ Households

Source: Average of ACS 1-Year Estimates 2015-2017

The percent of mortgage-paying older-owner households, defined as non-multigenerational households with at least one person age 65 or over, is lower than the percentage rate for the overall NVAR region population. The area in the NVAR region with the lowest percent of older-owner households that pay a mortgage is North Arlington, likely due to the age of the neighborhood and the length of time that residents have lived in their houses. The communities around Centreville and Chantilly also have a lower share of older owner-households that pay a mortgage relative to their younger peers.

HOUSING COSTS AS A SHARE OF HOUSEHOLD INCOME

It is a well-known story in the D.C. region that housing costs place a burden on family finances, and not just for lower-income families in rental units. Housing financial stress also exists for many homeowners in the NVAR market and broader region. Households with disproportionately high mortgage payments must make regular trade-offs on spending – from vacations, to buying and repairing cars, to dining choices. These households are also more susceptible to financial calamity when there is a recession or other market downturn. In looking at the exposure of the NVAR market to housing stress among homeowners, we examine data for severely cost-burdened owner households whose housing costs account for 50 percent or more of their income. It is worth highlighting, however, that household income is not the same as wealth. Some households may have low incomes but substantial savings or investments that they use to pay housing costs. Census data don’t reflect that.

Given recent gains in housing values across most sub- markets in the NVAR region, Realtors® may benefit from understanding the patterns of housing stress when helping their clients make sound housing decisions.

The area with the lowest share of severely cost-burdened owner households is North Arlington (Map 2A). Only 4.8 percent of owner households with a mortgage in North Arlington pay 50 percent or more of their household income towards housing costs. The area with the highest share of severely cost-burdened owner households is around Annandale where 12 percent of owner households with a mortgage have housing costs that account for 50 percent or more of their household income. While the area around Annandale has among the lowest rates of owners paying a mortgage, the area has the highest share of severely cost-burdened owners with a mortgage. Other communities that are severely cost-burdened include Southern Fairfax from Lorton to Clifton (11.8 percent) and South Arlington (11.1 percent).

Map 2. Percent of Owner Households that Are Severely Cost-Burdened
2A. All Households; 2B. 65+ Households

Source: Average of ACS 1-Year Estimates 2015-2017

The areas where older owner households are severely cost-burdened are relatively different from overall owner households, with the exception of Arlington (Map 2B). Within Arlington County, severely cost-burdened older owner households align with overall owner households. North Arlington has the lowest share of cost-burdened older owner households. Only 11.9 percent of older owner households in North Arlington are severely cost-burdened. South Arlington, in contrast, has the highest share of cost-burdened older owner households. Among older owner households in South Arlington, 27.8 percent are severely cost-burdened. The rest of the NVAR region has a notably lower share of severely cost-burdened older owner households than South Arlington. The communities most distant from the D.C. central business district all have relatively low shares of older owner households that are severely cost burdened.

SINGLE-INCOME HOUSEHOLDS WITH A MORTGAGE

The likelihood of a family facing housing financial stress is higher for single-income households. Single-income owner households, restricted to families for this section, have the highest risk of not meeting mortgage obligations due to job disruption – for example, contractor workers during the most recent federal government shutdown. Single-income households include both single-parent families and households that are one-income by choice or circumstance.

The high cost of childcare can be a deciding factor for some families opting for a stay-at-home parent. Earnings often need to exceed $2,500 per month just to cover the cost of full-time day care in the NVAR market. Increasingly, these same income requirements apply to adults who have elder care responsibilities for parents or other relatives. Concentrations of single-income households, regardless of the reason, may reveal housing sub-markets that would be most vulnerable to future economic downturns.

Overall, the share of owner households with a mortgage that only have a single worker ranges among communities in the NVAR region from 19 percent to 27.5 percent (Map 3A). The area from McLean to Great Falls has the highest share of owner households with a mortgage with only a single worker in the family (27.5 percent). Other areas with families reliant on a single worker include the communities around Vienna (25.6 percent) and Springfield (25.9 percent). The community with the lowest share of single-worker families that own and pay a mortgage is South Arlington (18.9 percent). The only notable difference when examining older households is Alexandria (Map 3B). Older households in Alexandria are more reliant on a single income within their age group as compared with owners overall.

Map 3. Percent of Owner Households with a Mortgage with One Worker in Family
3A. All Households; 3B. 65+ Households

Source: Average of ACS 1-Year Estimates 2015-2017

 

CONCLUSION

As mortgage debt frequently accounts for the largest portion of total household debt, mortgages play a significant role in household spending patterns. Households paying a mortgage that are severely cost-burdened or reliant on a single worker’s income may be less financially resilient in an economic downturn. In addition to impacting their own finances, a household’s financial resilience impacts their broader community. Households experiencing difficulty paying a mortgage are likely to reduce spending on other goods and services such as car repairs, entertainment, or eating out at restaurants – and are also less likely to be able to pay to maintain their home’s appearance and condition.

In the NVAR region, areas farther from the Washington, D.C. central business district tend to have a higher share of owner households that are not free and clear of a mortgage. Furthermore, these same areas have a comparably high share of severely cost- burdened owner households. While the economy continues to grow, there is little risk, barring extended government shutdowns, of mortgage default for cost-burdened households. However, monitoring those areas of the NVAR market where housing stress   is most prevalent is an important market indicator for Realtors® to follow.  In contrast, those markets that have the highest prevalence of free-and-clear households are perhaps the most ripe for targeting new listings – which are needed to keep this market moving!