Mortgage originations among middle-aged borrowers, ages 40 to 60, have been on a fast-paced decline since 2004.
With the tightening and loosening of credit standards over the years, many just can't find the right moment to jump into the housing market or may be burdened with outstanding debt balances.
- One possibility is that the credit boom preceding the Great Recession built higher consumer debt levels. Afterward, underwriting standards tightened across the board in 2008-2009, so that any new potential borrowers had little opportunity to take out new loans. An acceleration and then slowdown in lending across the board would lead loans, and their associated borrowers, to be older today on average than in 2003.
- Alternatively, the shift toward older borrowers could have resulted from new loan originations increasingly favoring older borrowers over younger borrowers, whether this arises from recent changes in borrower or lender behavior.
The New York Fed reported that mortgages are affected by both factors. Originations among all ages from 20 to 65 have experienced a large decline from 2004 to 2015, but the decrease was most observed among middle-aged borrowers, with a 60 percent fall in per capita originations. Meanwhile, the oldest ages (65 and up) experienced only modest declines in originations.
"We see decisive evidence of a boom and slowdown in mortgage originations at most ages, which by itself would generate an older class of mortgage holders by 2015," the New York Fed stated in the report. "In addition, we observe a tilt of mortgage originations away from younger borrowers and toward older borrowers between 2003 and 2015."
The report continued, "The tilting of new credit toward older ages may be an unsurprising consequence of credit tightening, when one considers the close relationship between credit risk score and age. Clearly higher risk score standards in underwriting affect younger borrowers differently than they do older borrowers."
In addition, younger borrowers are affected by growing student debt, which could hinder their ability to obtain a mortgage loan.
"Hence the aging of the American borrower bodes well for the stability of outstanding consumer loans. At the same time, the likely combination of muted credit access and lower demand for credit that we observe among our younger borrowers may well have consequences for growth," the report explained. "The graying of American debt that we observe between 2003 and 2015, then, might be interpreted as a shift toward greater balance sheet stability, and away from credit-fueled consumption growth."
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