Nearly 4 in 10 Long Island homeowners have no mortgage

A growing percentage of Long Island households own their home without a mortgage, which raises questions about how these mortgage-free homeowners will affect the region’s housing market in the coming years, according to a Newsday analysis of census data.

Nearly 38% of Long Island homeowning households are mortgage-free, according to the U.S. Census Bureau’s American Community Survey 1-year estimates for 2023. That compares with 35.4% in 2018.

The pattern on Long Island is similar to the national trend, with 39.8% of homeowners who own reporting they have no mortgage, according to an analysis released in late October by the National Association of Home Builders.

Nationally, areas where homes are more affordable and those with a greater share of older residents had higher mortgage-free rates, said Na Zhao, principal economist at NAHB.

Lack of options

On Long Island, more than half of these mortgage-free homeowners are 65 or older. Owners who have paid off their mortgage stand to potentially cash in if they were to sell their homes, which have seen substantial increases in value in recent years.

But housing experts told Newsday that a lack of attractive housing options, the expensive rental market and seniors’ preferences for staying in their homes all work against these mortgage-free homes hitting the market.

Still, Zhao says she doesn’t see a connection between the growing share of mortgage-free owners and national issues with limited housing inventory. That’s because the percentage of owners without a mortgage has risen steadily over the past decade even when the number of houses on the market has climbed.

The biggest factor keeping people from selling their homes is the mortgage lock-in effect, she said, in which owners who have home loans with an interest rate around 3% choose not to move because of how much their housing payment would increase with a rate above 6%.

The average 30-year fixed mortgage rate was 6.79% for the week ending Thursday, according to mortgage purchaser Freddie Mac. Three years ago, the average was 3.09%.

“This inventory shortage is mostly because the people who have a mortgage responsibility, especially in those highly demanded areas, those people have to think about their financial burden if they trade up or sell and buy another house because they will lose their super-low mortgage [rate],” Zhao said.

Long Islanders looking to downsize are often surprised at how expensive smaller houses and townhomes have become and how little they would have left over after selling and buying elsewhere, said Andrew Russell, owner and founder of RCG Mortgage, a Hauppauge-based mortgage broker.

The median price of a condo during the 12 months ending in September was $750,000 in Nassau County and $475,000 in Suffolk County, according to OneKey MLS.

Meanwhile the median price of a single-family home was $815,000 in Nassau County and matched the all time high of $680,000 in Suffolk County in September.

Even though seniors might face expensive repairs to their aging houses, there’s a limited number of affordable options available if they want to move, Russell said.

“What’s the motivation for them to sell if they don’t have a great plan of where to go?" he said. “… Where’s the upside of them selling? So they’re kind of stuck.”

Staying home

There’s also been a change in seniors’ preferences in recent decades. Baby boomers hold the majority of real estate wealth in the United States and two-thirds said they plan to stay in their homes rather than downsizing or moving to an assisted living facility, according to a 2021 survey conducted by Freddie Mac. 

In 2019 Freddie Mac reported about 1.6 million more senior households in the United States planned to stay in place compared with previous generations — roughly equivalent to the number of single-family and multifamily housing units built each year in the country at the time. 

“Older households tend to have paid off their mortgage," said Odeta Kushi, deputy chief economist at First American Financial Corp., a provider of title insurance and settlement services in Washington, D.C., "and these households are increasingly choosing to age in place."

By Jonathan LaMantia

jonathan.lamantia@newsday.com@jonlamantia

Jonathan LaMantia covers residential real estate and other business news on Long Island. He previously covered the business of health care for Crain's New York Business.