Total Mortgage Debt Increases to $10.3 Trillion in 2021

Average Individual Mortgage Debt Increases by 5.9%

Average mortgage debt increased 5.9% to $220,380 in the 12 months ending September 2021, according to Experian data. That’s a greater increase than the 3.9% increase in total average debt balance (for all types of debt, including mortgage) over the same time period. Only the red-hot automobile market saw a greater jump last year, at 6.5%.

Source: Experian data from Q3 of each year

The $12,195 jump for average mortgage balances last year is in stark contrast to more modest increases in previous years. Contributing factors included persistently low interest rates, which enticed consumers to either borrow for their first home or refinance their existing mortgage; the continuation of federal mortgage forbearance programs that began in spring of 2020; a shortage of available homes for sale putting additional price pressure on existing inventory; and the increased presence of institutional investors in the single family home market.

Average Mortgage Debt, 2017-2021

Rising interest rates have the potential to slow average balance growth in 2022. Rates for conventional 30-year mortgages already climbed to levels above 5% in April 2022, more than 2 percentage points higher than its lowest point of 2.8% in 2021. Higher mortgage rates generally mean prospective mortgage borrowers are priced out of more homes, as their monthly mortgage payment would have to increase to cover the additional interest.

However, 2021 introduced another factor that could affect average balances: inflation. It’s growing at an even faster rate than the 5.4% increase during the September 2020 to September 2021 period, and will likely continue to boost nominal home values (and by extension the amount of new mortgages) in 2022.

Mortgage Inquiries Decline After a Nearly 50% Jump During Pandemic

While 2020 was the year many existing homeowners took advantage of rock-bottom interest rates to refinance their mortgages, resulting in a record surge of applications, 2021 saw the flip side of that surge. New mortgage inquiries were sharply lower for most of 2021.

Change in Mortgage Inquiries, 2020-2021

A mortgage inquiry occurs when a prospective homebuyer applies for a mortgage with a lender. More inquiries, naturally, indicate increased demand. In 2020, year-over-year inquiry growth was sharp as homeowners refinanced existing mortgages and more homebuyers entered the market.

In 2021, however, inquiries clearly slowed despite rates still being historically low. Additional layers of economic uncertainty and turmoil in the housing market may have played a role in this slowing as well, as Americans were still returning to work throughout 2021 after a significant absence.

Pandemic-Related Forbearances and Deferrals Wind Down

Under the CARES Act of 2020, homeowners impacted by the pandemic are entitled to a mortgage forbearance period of 180 days, which could be followed by another 180-day period if needed. At its peak, nearly 5 million homeowners were taking advantage of a deferral or forbearance.

As of September 2021, most homeowners whose mortgage was in forbearance have since exited the program. According to Black Knight, a housing industry analyst, 1.24 million homeowners are still in forbearance programs.

A mortgage in COVID-19-related forbearance cannot be reported negatively to the credit bureaus by lenders.

Credit Scores Among Consumers With a Mortgage Remain Steady in 2021

Consumers with a mortgage in 2021 had an average FICO Score of 756, which is up three points from 2020 and significantly greater than in 2011, when the average score among homeowners was 719.

But even in the face of a brief, steep recession and roiled economic conditions brought on by the global pandemic, credit scores of homeowners have steadily climbed.

Average FICO Score Among Homeowners

Average credit scores among homeowners have been climbing for a number of years, which is partially a function of tighter underwriting standards from lenders combined with a decade of steady economic growth.

Nonetheless, the components that go into one’s credit score—including payment history, credit utilization and length of credit history—have held steady for homeowners as well as others. Prepandemic, homeowners managed their credit well, as exhibited by the steady climb of scores throughout the previous decade. And even in the face of significant economic adversity, robust regulatory action and legislation—particularly the CARES Act—appears to have offered both homeowners and other consumers (whose scores also increased) an invaluable ballast.

Mortgage Balances Saw Biggest Increase Among Youngest Generations

As with other types of debt, average mortgage balances are highly dependent on where one is in their financial journey. Younger homeowners are more likely to be just one or two years into repaying their first mortgage. In other words, they’re more likely to have larger remaining balances than more established owners who’ve accumulated home equity from years of mortgage payments and home value appreciation.

Source: Experian data from Q3 of each year; ages as of 2021

Generation X, who until this year was the cohort with the highest average mortgage debt, saw their balances increase much more modestly than those of millennials, whose average balances increased 10.1% in 2021. But even older consumers, including baby boomers and the silent generation, saw increases in mortgage balances, which hasn’t been the case for them in recent years. Generation Z is seeing its average mortgage balance grow rapidly as more of this cohort reaches homebuying age.

Consumers in All 50 States Saw Mortgage Debt Increases

In line with the national increase, all 50 states and Washington, D.C., saw varied increases in average mortgage balances. One state, Idaho, saw double-digit growth: 11.2% in 2021.

Source: Experian data from Q3 of each year

Mortgage balances increased the most in Western states adjacent to California. As prospective buyers seek opportunities outside a state where average balances are nearly $400,000, buyers are bidding up inventory. Idaho saw the greatest increase from September 2020 to September 2021, while Utah increased 9.8%.

Source: Experian data from Q3 of each year

Among the states that saw the smallest mortgage balance increases, the regional pattern isn’t as apparent. Nonetheless, even in these states with smaller increases, mortgage balance increases were all greater than the nationwide average mortgage increase of 1.9% in 2020, underscoring the broader trend of average mortgages growing, regardless of local and regional market conditions.

Source: Experian data from Q3 of each year

Differences Between Mortgage Markets Today and 2008

Such dramatic increases in home prices may remind some of the housing market bubble in the mid-2000s. But while the jump in price may resemble that overheated housing market, the similarities appear to end there. Among the differences:

• Significantly lower mortgage interest rates: Although mortgage rates were largely affordable in the mid-2000s, average mortgage rates for a 30-year fixed rate mortgage ranged between 5.5 and 6.5% for much of that period, significantly greater than the 3% fixed-rate average which persisted in the 2020 to 2021 period. Lower rates can reduce monthly payments and mean prospective buyers may qualify for larger mortgages.
• Stricter underwriting standards: Mortgage documentation, or lack thereof, was a problem for the housing market 15 years ago. But today, the average credit score for homeowners today is 756, well above the average score of 721 in 2011. More importantly, as anyone who’s applied for a mortgage recently knows, documentation of income, home appraisals and other steps in the mortgage underwriting process are now much more strict.
• Fewer homes to choose from: Housing supply remains a persistent problem afflicting the U.S. economy. The housing deficit, as FreddieMac characterizes it, increased by 1.3 million units from 2018 to 2020. New housing construction, already hampered by pandemic and supply chain issues, is unlikely to close the gap between supply and demand anytime soon.
• More buyer competition: There may have been some bidding wars in certain housing markets 15 years ago, but at least there were enough homes to go around back then. Today’s prospective buyers are competing with all-cash individual buyers or institutional investors for some properties, which wasn’t as much of an issue in the mid-2000s. The presence of these deep pockets in the housing market, more pronounced during the pandemic, has put additional upward pressure on home prices. Currently, roughly 1 in 4 existing home transactions are all-cash transactions, which are generally preferred by sellers, all other things being equal.

All this said, recently homes have been, aside from their more practical use, a good investment. According to CoreLogic, a housing industry analyst, homeowners with a mortgage saw their home equity gain $3.2 trillion during the period examined in this report, September 2020 through September 2021. The S&P CoreLogic Case-Shiller National Home Price Index, which measures average home prices in major metropolitan areas across the nation, rose 19.5% during that same period.