Mortgage Debt Sees Record Growth Despite Pandemic

Mortgage Debt Sees Record Growth Despite Pandemic article image.

Despite record unemployment and widespread financial struggle in 2020, some consumer markets have remained remarkably intact. Home loans are one of them—and even with physical limitations temporarily hampering in-person homebuying, overall mortgage debt in the U.S. reached record highs in 2020.

In the midst of the pandemic, outstanding mortgage debt rose to over $10.3 trillion in the third quarter (Q3) of 2020, according to Experian data. Individual consumer mortgage balances also rose, growing to the highest level in at least a decade.

This type of growth during the worst economic recession since the Great Depression is somewhat surprising, and serves as a contrast to what happened to the mortgage market during the recession of the late 2000s. But as the pandemic and its effect on the economy continue, it's becoming clear that many of the financial impacts of the current recession are unique.

As part of our ongoing research on debt in the U.S., Experian reviewed credit report data to see how the past year has affected mortgage debt and to understand what impact the pandemic has had on home loans. This analysis compares annually representative data from 2019 with the data from the third quarter (Q3) of 2020, the most recent accessible data.

Overall Mortgage Debt Sees Highest Increase in Decade

From 2019 to 2020, mortgage debt grew by 7% to reach a record high of $10.3 trillion, according to Experian data. Not only did this debt reach a record high, but it grew at the fastest rate it has in at least 10 years—underscoring how significant of a year 2020 was for home loans.

Snapshot: Overall Mortgage Debt
2010201920202019-2020 Change
Total outstanding debt$8.1 trillion$9.6 trillion$10.3 trillion+$703 billion (7%)
Total number of accounts51.1 million54.6 million56.1 million+1.5 million (3%)

Source: Experian

Since the Great Recession in the late 2000s, overall mortgage debt has ebbed and flowed, with the trend of growth seen in the past seven years coming on the heels of a half-decade contraction that preceded it. In 2008, mortgage debt hit a peak at $8.7 trillion. Overall mortgage debt decreased for the five years that followed, shrinking to $7.7 trillion in 2013.

Then, mortgage debt began a steady rebound, growing by $2.6 trillion to where it stood as of Q3 2020. For context, that growth eclipses the sum total of all student loan and credit card debt combined, and it happened in just seven years.

Despite this bounce back in the aftermath of the Great Recession, consumers in 2020 appear well poised to manage their growing mortgage debt. Delinquency rates for mortgage holders are down (more on that later) and the average FICO® Score among mortgage holders is up. These statistics, while not representative of every individual's financial situation, indicate that Americans are generally managing their mortgage debt responsibly.

Consumers Increase Individual Mortgage Debt by 2%

In line with the past decade of overall growth, average individual consumer balances grew in 2020, rising to $208,185, according to Experian data. Unlike the rise in overall debt, individual balances increased at a rate of 2%, which is similar to the annual growth seen over the past decade. Even with the moderate growth, individual mortgage balances are still the highest they have ever been.

Snapshot: Individual Mortgage Debt
2010201920202019-2020 Change
Avg. mortgage balance$187,802$203,296$208,185+$4,889 (+2%)

Source: Experian

As of 2020, approximately 44% of U.S. consumers have a mortgage. That's unchanged since 2019, according to Experian data. While the slice of the population with a home loan didn't change, average mortgage balances are up, which shows that consumers may be borrowing more than usual.

Historically low Federal Reserve rates helped ramp up competition in the housing market during the pandemic, and some homes have been sold above asking price as a result. In September 2020, according to data from homebuying website Zillow, 1 in 5 homes sold above their listing price. This indicates that competition and ample demand may have driven purchase prices up, and in combination with other factors, may explain why average mortgage balances are creeping up.

Mortgage Inquiries Rise Nearly 50% at Onset of Pandemic

A contributing factor to much of the surge in overall mortgage debt was the increased number of people applying for home loans. In early March 2020, at the onset of the pandemic, consumer inquiries for new mortgage loans spiked by 47% compared with the same period in 2019, according to Experian data.

Nearly a year into the pandemic, it's clear the financial impact was felt differently across various populations. While many consumers lost their jobs or saw their wages reduced and encountered financial hardship, others were able to keep their jobs and even found themselves spending less than before. On top of that, the Personal Saving Rate recorded by the U.S. Bureau of Economic Analysis reached record highs at the onset of the pandemic, most recently (as of December) settling at the highest level since 1975.

In combination with the Federal Reserve dropping interest rates in March 2020, consumers whose financial situations were secure, or even improved, during the pandemic appeared to see 2020 as an opportune time to purchase a home.

For almost every month in 2020, the number of hard inquiries for new mortgage loans was measurably higher than it was during the same month in the prior year. And while not all these inquiries turned into new loans, the surge in applications reveals a level of eagerness and financial ability that would not normally be expected during a financial downturn.

Forbearances, Deferrals Double During Pandemic

Though Americans have been applying for mortgages at record rates over the past year, the number of accounts placed in forbearance or deferral has also risen sharply since the onset of the pandemic. As the reality of the pandemic set in in April 2020, the number of accounts in forbearance and deferral doubled, according to Experian data.

At one point in April 2020, the number of accounts reported as in forbearance or deferral grew by 102%. The total balance of these accounts increased by 132% to more than $567 billion. In May 2020, both the number of accounts and the total balance recorded as in forbearance or deferral increased again. Total balances on accounts in forbearance or deferral grew by 67% (to a total of $944 billion) and the total number of accounts grew by an additional 60%, according to Experian data.

This sharp increase in paused mortgage repayment was likely sparked by the Coronavirus Aid Relief and Economic Security (CARES) Act, which was signed into law at the end of March 2020. The act required companies servicing government-backed mortgages to allow borrowers financially impacted by the pandemic to temporarily place their loans in forbearance.

So far—when measured by the health of overall consumer credit scores—these measures to avoid delinquency and allow those impacted by the pandemic to modify repayment seem to have worked.

Consumers See Improvement in Mortgage Delinquency Rates

Across the various types of debt in the U.S., consumers consistently decreased their delinquency rates in 2020, and mortgage loans were no exception. Since 2019, consumers have seen significant improvement across measures of late payment severity.

The greatest change occurred among mortgage payments 60 to 89 days past due (DPD), with the percentage of accounts considered delinquent to that degree falling by 54%, according to Experian data.

Mortgage Delinquency Rates
Mortgage Delinquency Rates20192020Percent Change
% of accounts 30-59 DPD1.53%0.80%-47%
% of accounts 60-89 DPD0.49%0.23%-54%
% of accounts 90-180 DPD0.47%0.29%-38%

Source: Experian

This reduction in delinquency rates shows, among other things, that consumers are missing fewer payments than ever. Much of this reduction in delinquency can also likely be attributed to the protections put in place by Congress and various lenders.

Payment history is the most important aspect of credit scores, and the decrease in delinquencies can likely be connected to overall growth of credit scores, especially the score growth seen among homeowners.

Credit Scores Among Consumers With a Mortgage Up in 2020

Since 2019, the credit profile of consumers with a mortgage has improved. The average FICO® Score among Americans with a home loan increased from 747 in 2019 to 753 in 2020, according to Experian data. That's 43 points higher than the national average FICO® Score, which was 710 in Q3 2020.

This score improvement mirrors the broader trend of the average FICO® Score increasing over time, but may also highlight the fact that mortgage lenders have continued to employ rigorous lending standards.

Average Consumer FICO® Scores
Average FICO® Score for consumers with a mortgage747753
Average FICO® Score among all consumers703710

Source: Experian

These stats also offer reassurance that the pandemic has not caused widespread trouble (so far) to homeowners' credit scores. If protections had not been put in place to help financially impacted borrowers insulate their credit to some degree, a wave of delinquencies and foreclosures could have severely impacted individual scores and finances overall.

When looking at mortgage borrowers who have scores below the national norm, only around 15% of the consumers with a mortgage in 2020 were considered subprime or super subprime borrowers (those with an average FICO® Score of less than 670). These consumers had a mortgage balance of $160,913 in 2020—23% less than the national average.

Mortgage Balances Saw Biggest Increase Among Youngest Generations

In line with patterns across other types of debt, younger generations drove a healthy portion of mortgage debt growth in 2020. Since 2019, members of Generation Z—the youngest generation in our analysis—saw their average balances spike by 19%, according to Experian data. That represents more than a $27,000 increase in mortgage debt on average in just a year.

Millennials, who saw a fraction of the growth that Gen Z did—increasing their average mortgage balance by 6%—still had the second-highest spike of any generation. They were followed by Generation X, baby boomers and the silent generation.

Change in Average Mortgage Debt by Generation
Generation Z (18-23)$142,600$169,47019%
Millennials (24-39)$224,500$237,3496%
Generation X (40-55)$238,344$247,5644%
Baby boomers (56-74)$175,865$178,6882%
Silent generation (75+)$132,914$133,8271%

Source: Experian; Ages as of 2020

Consumers in Nearly All States Saw Mortgage Debt Increase

Across the country, individual mortgage balances increased in all but one state between 2019 and 2020. Only in Connecticut did consumer balances shrink—and just barely at that. The average mortgage debt in that state decreased by 0.3% in 2020.

Overall, 36 states and the District of Columbia saw their mortgage debt increase at a rate of over 2% (the national average) in 2020. Consumers in Idaho saw the largest annual increase, at 8.3%, and the smallest growth was 0.4% in Illinois.

Borrowers in the District of Columbia had the highest mortgage debt of any state, carrying an average of $437,976—an increase of nearly 4% since 2019. California had the second-highest average, with consumers owing $371,981 in mortgage debt in 2020—over $8,000 or 2.2% more than the previous year. The nation's capital and California were followed by Hawaii, Washington and Colorado as having the highest average mortgage debt.

Average Individual Mortgage Balance by State
StateAverage FICO® Score20192020Change
District of Columbia713$421,499$437,976+3.9%
New Hampshire729$179,054$184,468+3.0%
New Jersey721$239,289$241,772+1.0%
New Mexico694$161,271$163,384+1.3%
New York718$237,610$240,795+1.3%
North Carolina703$162,520$165,636+1.9%
North Dakota730$162,774$167,883+3.1%
Rhode Island719$185,777$189,946+2.2%
South Carolina689$160,059$165,649+3.5%
South Dakota731$151,489$158,728+4.8%
West Virginia695$110,464$112,912+2.2%

Source: Experian data

How Did the COVID-19 Pandemic Impact Mortgages in 2020?

It's difficult to illustrate the pandemic's full impact on home borrowing in 2020, but there are a few trends that can be attributed to the pandemic with a high degree of confidence.

First, the spike in mortgage forbearance and deferral clearly shows that mortgage lenders and consumers were quick to adopt Congress' emergency protections that allowed some to delay repayment. These protections were meant to help consumers struggling financially, and with the average FICO® Score of mortgage borrowers growing, this plan appears to have been successful thus far.

Second, the Fed's reduction in interest rates appears to have helped stimulate borrowing, as the number of hard inquiries for first mortgages showed a sharp increase the month the Fed announced changes to their benchmark rate compared with the same month the prior year.

Credit and Debt Trends in Changing Times

Though initial debt data shows promising changes, it's important to recognize that this data is a snapshot taken during a turbulent period. Additionally, most of these changes occurred over a period of less than a year and are subject to further change as time goes on.

This analysis looks at the most recent (upon date of publication) data from Q3 2020 and compares it with an annual snapshot for 2019 and other years cited. Experian will continue to monitor changes to consumer credit reports and will provide updates when notable change occurs.

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