Despite record-breaking housing costs, the number of mortgage-free homeowners grew by 36 percent between 2010 and 2016. Why? Aging baby boomers and a rising number of well-off millennials might be part of the answer, data show.
If you’re among the thousands struggling with the high cost of housing in Seattle, here’s a statistic that might make you wince.
Census data show that in 2016, more than one in four Seattle homeowners owned their home outright, free from any mortgage debt.
This lucky segment of Seattle households has grown at a remarkably fast pace. There were about 31,000 owner-occupied households with no mortgage in 2010. By 2016, the most recent data available, the number had jumped to almost 42,000, which pencils out to a 36 percent increase. That’s nearly seven times faster than the rate of growth for homeowners carrying a mortgage.
The data show that Seattle has also outpaced most other big cities. Among the 50 most populous U.S. cities, we rank fifth for the increase in mortgage-free homeowners since 2010.
That may seem counterintuitive. After all, Seattle has become one of the most expensive real-estate markets in the country. So what’s behind the increase in homeowners unencumbered by monthly mortgage payments here?
One factor, certainly, is the massive baby boomer generation, now aging into retirement. This group, often defined as those born between 1946 and 1964, makes up a big chunk of Seattle homeowners — more than 40 percent belong to this generation.
It’s likely that many of these folks, after chipping away at their mortgages for many years, celebrated their final payment at some point this decade. Indeed, the data show that it’s primarily because of boomers that the number of mortgage-free households has swelled in Seattle.
In 2016, when boomers were between the ages of 52 and 70, there were about 21,000 mortgage-free boomer-owned homes in Seattle. That represents a 43 percent increase from 2010, when fewer than 15,000 mortgage-free homes were owned by folks in that age group.
Of course, just because you’ve paid off your mortgage by 65 doesn’t mean you’re living on easy street. There are still a lot of expenses associated with owning a home — we all know that property taxes keep going up — and wage income stops post-retirement. Census data show that more than a third of Seattle’s mortgage-free homeowners have a household income lower than $50,000. (There is a tax exemption program for Washington homeowners age 61 and older with income no higher than $40,000).
Aging boomers aren’t the only reason that mortgage-free households have been on the rise in Seattle. In fact, nearly a quarter of these free and clear homeowners are younger than 55, the data show.
Another factor is the rise of the all-cash homebuyer.
According to ATTOM Data Solutions, a California-based real-estate data company, all-cash home purchases in the Seattle market nearly doubled in just three years, from 2010 to 2013, when these sales peaked at about 13,500. The number has dropped a little since then, but remains much higher than it was at the start of the decade.
Matthew Gardner, chief economist with Windermere Real Estate, says that increase in all-cash buyers at first was due to investment purchases in the wake of the Great Recession.
“The way I see it, cash purchases rose as the market was falling and investors started to snap up ‘cheap’ housing,” he said in an email.
But at some point, Gardner feels that the investment buyer gave way to a different type of buyer — one who was just trying to sweeten the deal in a very competitive housing market.
“As the market heated up, it moved to buyers using cash to put them in a more favorable position when it came to making offers in an increasingly heated market,” he said.
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Sellers love an all-cash offer because the deal doesn’t hinge on mortgage approval, meaning there are fewer stumbling blocks toward closing. It’s not uncommon for a seller to pass over a higher-priced offer that has conventional financing in favor of an all-cash offer.
(A note on the census data: A housing unit only counts as an owned home if the owner is the occupant. Typically, an investor who purchases a home will rent it out, and that would be classified as a rental unit, not an owned home with no mortgage debt.)
It goes without saying that anyone who can swing an all-cash offer in Seattle, where the median home price is currently north of $700,000, is probably quite well off. And the fact that all-cash offers have increased could be seen as one more sign that Seattle has become a city of extremes, both in terms of wealth and poverty, since the start of this decade.
And on that note, maybe it shouldn’t come as a surprise that there were around 2,400 Seattle homeowners under the age of 35 who owned their home outright in 2016, according to the data. That number more than doubled from 2010, which makes millennials the fastest growing age group of mortgage-free homeowners.
Maybe they’re successful young tech entrepreneurs — or perhaps they just come from wealth. The data, unfortunately, doesn’t reveal how they were able to pay for their home in full.