Despite the concern over the last few
years about the number of homeowners who owe more on their mortgages than their
homes are worth, it turns out that nearly one third of owner-occupied homes in
American have no mortgages at all. In a
recent study using third quarter data from TransAmerica, the real estate
website Zillow® found that 20.6 million Americans own
their homes outright. This is 29.3
percent of all homeowners.
Some of these homeowners have paid
off their mortgages over time while others purchased their homes for cash. Not surprisingly there were higher rates of
homeownership in older age groups, in areas where housing is generally less
expensive, and among homeowners with higher credit scores. Data used in the study covers more than 800
metro areas, 2,100 counties and 21,900 ZIP codes nationwide.
States with the highest rates of
non-mortgaged homeownership are West Virginia (45 percent), Louisiana (39
percent) and Arkansas (38 percent). Nevada
had the lowest rate (20 percent) closely followed by the District of Colombia
and California at about 20 and 22 percent respectively.
Among the 30 largest metropolitan
areas the highest rate was in Pittsburgh (38.6 percent), Tampa (33.2
percent). New York, Cleveland and Miami followed,
all within a point of the national average.
The lowest rates were in the Washington, DC metropolitan area which was
lower than the District itself at 15.5 percent, and Atlanta (17.7
percent). Las Vegas, Denver, and
Charlotte were also at 20 percent or lower.
The study found that the geographic
differences were largely driven by differences in the median home values. This was particularly true at the county
level where free and clear homeownership rates were negatively correlated with
the median home values in those counties.
Fifty-three percent of homes bought by low credit free and clear
homeowners were sold for $100K and less, while 85% of homes were sold for $200K
Not surprisingly, 20.5 percent of those in the 54 to 74-year
old age group had the highest rate of non-mortgaged homeownership at 20.5
percent followed by those 74 to 84 years old (17.9 percent). But the study also found that as a percentage
of homeowners of all homeowners the 20- to 24-year age group 34.5 percent were
mortgage free. The study’s authors
speculate that homes owned by those in the youngest cohort might have mostly
been bought for cash by parents or guardians or their owners are young
millionaires. A similar pattern was
found in the cohorts for ages 25 to 49 so the rates may also reflect the increase
in total homeownership (both mortgaged and not) with an increase in age.
Among homeowners who own their homes
outright, 44 percent have a high credit scores – between 800 and 900. Only 15.5
percent of homeowners with the highest credit rating of 900-990 are
free-and-clear, possibly because these homeowners choose not to pay off their
mortgages and diversify their savings to safeguard against potential home
depreciation. Twenty-nine percent of low
credit homeowners (501-600) are free and clear.
“So far we have used our unique
data on how much homeowners owe on their homes primarily to identify underwater
and delinquent groups of homeowners,” said Zillow Chief Economist Dr. Stan
Humphries. “But looking at those homeowners who are free-and-clear is
important, too. Homeowners unencumbered by a mortgage may be more flexible than
indebted homeowners, and therefore more apt or willing to list their homes or
enter the market for a new property. By determining where these homeowners are
located, we can also gain insight into potential inventory and demand in those
areas, as well.”