Association for Public Policy Analysis & Management

Panel: Housing Wealth and Debt of Senior Homeowners: Implications for Policy

(Housing, Community Development, and Urban Policy)

More than 80% of U.S. seniors own their homes, and home equity is the primary asset for a majority of seniors, particularly those in the lower quartiles of the income distribution.  As the baby boomer generation enters retirement with low levels of financial assets, understanding how seniors manage their often largest financial asset becomes ever more critical for informed policy decisions. First order questions include the extent to which seniors consume from home equity, and the nature and timing of spending from home equity. The first paper, “Homeownership at the End of Life,” follows senior households over time to trace exits from homeownership and the consumption of home equity up until an after death (e.g., through bequests). This is critical for policy, as little is known about what happens to the largest asset of seniors around the time of their death. Is it used to pay for health expenses that would otherwise fall to publicly subsidized programs, such as Medicaid? Or is home equity primarily passed on to heirs through bequests?

The second two papers probe further questions about home equity consumption and debt among seniors. Prior research has documented changing trends in the debt levels among seniors; for example, where more than 40% of seniors in 2016 entered retirement with mortgage debt, compared with only 20% of seniors two decades prior, a trend that has been increasing steadily over time. Yet despite awareness of these trends, little is known about the reasons for increasing indebtedness, or the impact on subsequent well-being. In the paper, “"Exploring the Rise of Mortgage Borrowing Among Older Americans," the authors analyze the factors that contribute to rising indebtedness among seniors, including personal preferences as well as exogenous policy changes such changes to U.S. tax policy.  Their findings indicate that it is a combination of factors that have contributed to the rise in debt, rather than a single issue—which is important for understanding the likely implications of increasing indebtedness.  The paper, “Do Federally Insured Reverse Mortgages Reduce Seniors’ Debt Stress?”, tackles the issue of the implications of higher debt levels on senior well-being, measured here as self-reported stress from financial debts. The authors examine the extent to which debt stress is affected by senior’s use of federal policy tool, the Home Equity Conversion Mortgage (HECM).