Latest / The Demographics Podcast with Fexingo: Aging Populations, Birth Rates, and Economic Impact / How Falling Birth Rates Reshape the Mortgage Industry
Transcript
- Lucas: So I was looking at a recent report from the Urban Institute that tracks mortgage origination data by age group, and something jumped out. In 2015, borrowers over 55 accounted for about 22 percent of all new mortgages in the United States. By the end of last year, that number had crossed 35 percent. Luna: That's a pretty dramatic shift in just over a decade. And I'm guessing it's not just because there are more older people. Lucas: Right — it's partly demographic math. The baby boom generation is huge, and they're aging into their late sixties and seventies. But there's also a behavioral component. Older homeowners are staying in their homes longer. The average tenure for a homeowner in the US used to be around six or seven years. Now it's closer to twelve, and for people over 55 it's even higher. Luna: That has big implications for housing supply, because those homes aren't turning over to younger buyers. And it also means the mortgage industry is fundamentally shifting who its customers are. Lucas: Exactly. And if walking through this economy with us has made something click — like how demographic trends ripple through markets — that's the kind of insight we try to bring every week. This show stays ad-free, and listener support is what makes that possible. If you find value in these conversations, you can support us at buy me a coffee dot com slash fexingo. Luna: Yeah, it really helps keep the lights on and lets us keep diving into these angles without any sponsor pressure. And it's a great way to tell us what topics resonate. Lucas: So back to that older borrower cohort. One of the more interesting developments is the growth of reverse mortgages. These used to be a pretty niche product, often associated with high fees and, frankly, a bit of a sketchy reputation. But over the last five years, originations have grown at about 8 percent compound annual growth rate. Luna: That feels significant, especially when you consider that overall mortgage origination volume has been pretty volatile with interest rates. Reverse mortgages are essentially a way for older homeowners to tap home equity without selling — they get a lump sum or monthly payments, and the loan is repaid when they move out or pass away. Lucas: And the product has been modernized. The Home Equity Conversion Mortgage, which is the fha insured version, now has stricter counseling requirements and better consumer protections. But what's really interesting is how lenders are starting to design new products for the older borrower — not just reverse mortgages, but also conventional loans with underwriting that considers pension income, Social Security, and investment withdrawals more favorably. Luna: Because traditionally, mortgage underwriting is very focused on wage income — W-2s, pay stubs, that kind of thing. Retirees often have significant assets but less predictable monthly income on paper. So lenders are having to adapt. Lucas: Some of the bigger nonbank lenders have started using automated asset depletion models, where they calculate a monthly income equivalent from a borrower's investment accounts. Say you have $500,000 in a 401 — they might impute something like $1,500 a month in income over a 30-year period. That can help a retiree qualify for a purchase mortgage or a refinance. Luna: That's smart. But it also raises the question — are younger buyers being squeezed out? If older borrowers are staying in homes longer and also using their equity to buy second homes or investment properties, that further constrains supply for first-time buyers. Lucas: Yeah, the data shows that the homeownership rate for adults under 35 has actually been creeping up — it's around 38 percent now, which is higher than the trough after the financial crisis. But it's still below where it was in the early 2000s. And part of that is because the inventory of entry-level homes is so tight. A lot of those smaller, more affordable homes are occupied by older singles or couples who have aged in place. Luna: So the mortgage industry is really serving two diverging demographics: an older cohort with equity and assets, and a younger cohort that's more reliant on low down payment programs and first-time buyer assistance. And the products are bifurcating accordingly. Lucas: Some lenders are actually launching specialized divisions focused on the 55-plus borrower. They train loan officers on Social Security claiming strategies, Medicare, estate planning — things that aren't traditionally part of mortgage origination. It's almost like a financial advisory wrapper around the loan. Luna: That makes sense. Because for many older homeowners, a mortgage isn't just a transaction — it's part of a broader retirement income plan. Should they pay off the house? Should they take cash out? Should they do a reverse mortgage to supplement Social Security? Lucas: And the answer depends a lot on interest rates, longevity risk, and their heirs' expectations. One thing that's changed is that more older borrowers are carrying mortgage debt into retirement. According to the Consumer Financial Protection Bureau, the share of homeowners aged 65 and older with mortgage debt has doubled since 2000, to about 40 percent. Luna: That's partly because they bought later, moved to more expensive areas, or refinanced and took cash out. But it also reflects a structural shift — pensions are less common, and people are using home equity as a safety net. Lucas: So the mortgage industry is adapting on the product side. But another angle is distribution. How do you market a mortgage to someone who isn't on Zillow every day, who might be skeptical of financial products, and who values trust and personal relationships? Some lenders are partnering with retirement communities, elder law attorneys, and financial planners to reach this demographic. Luna: And they're also having to think about digital accessibility. A lot of the online mortgage application platforms are designed for mobile-first, younger users. But older borrowers often prefer a phone call or an in-person meeting. So there's a UX challenge there. Lucas: Let's zoom out for a second. The broader demographic picture — falling birth rates, longer life expectancies — means the population pyramid is inverting. In Japan, where this is most advanced, the mortgage market has been shrinking for years because there are fewer young households forming. Lenders there have shifted to focus on renovation loans, reverse mortgages, and products for multi-generational housing. Luna: And we're seeing similar trends in parts of Europe. In Italy, for example, the number of new mortgages originated each year has declined steadily since 2008, but the average loan size has increased. That suggests a smaller pool of buyers, but with more purchasing power — likely older buyers trading down or buying second homes. Lucas: In the US, we're probably a decade or two behind those countries, but the direction is clear. The mortgage industry will have to serve an older average borrower. That means more products that accommodate non-wage income, more reverse mortgages, more renovation loans for aging-in-place modifications — things like grab bars, wider doorways, step-free showers. Luna: And there's also a policy dimension. The Federal Housing Administration's reverse mortgage program has been under scrutiny for its financial health. The mutual mortgage insurance fund that backs it has had deficits in recent years, which could lead to premium increases or tighter lending limits. Lucas: If that happens, it could push more borrowers toward private reverse mortgage products, which are less regulated. So the regulatory environment matters a lot here. The Consumer Financial Protection Bureau has been active in monitoring reverse mortgage advertising and counseling standards. Luna: Let's talk about the first-time buyer side for a moment. Because even as the market shifts older, there are still millions of millennials and Gen Zers trying to buy. And the mortgage industry is seeing a rise in co-borrowing — parents co-signing or even taking out the mortgage themselves for their children. Lucas: Right — that's another demographic echo. Older parents with strong credit and equity are stepping in to help their kids. Some lenders now have specific products for multi-generational mortgages where the parent is on the loan but the child is the primary occupant. It's a way to transfer housing wealth across generations. Luna: But it also highlights the wealth gap. Not every older homeowner has the means to help their kids. And for those who don't, their children may be locked out of homeownership entirely. So the mortgage industry is both reflecting and amplifying existing inequalities. Lucas: That's a crucial point. Demographic trends don't affect everyone equally. The aging population is a boon for certain segments of the mortgage industry — reverse mortgage lenders, wealth management-affiliated mortgage shops, renovation lenders. But for lenders focused on entry-level first-time buyers, the shrinking pool of young households is a headwind. Luna: And that might drive consolidation. We've already seen a wave of mergers among mortgage lenders over the past few years, partly driven by interest rate volatility but also by demographic pressures. The lenders that survive will be the ones that can serve both ends of the age spectrum effectively. Lucas: One interesting indicator to watch is the share of mortgage originations that are for investment properties versus primary residences. Older borrowers are more likely to buy investment properties — they have the equity and the risk tolerance. If that share grows, it could further tighten supply for owner-occupiers, especially in affordable markets. Luna: So the mortgage industry of 2035 might look very different — fewer but larger lenders, a bigger role for reverse mortgages, underwriting that relies more on asset-based income, and a customer base that's on average 15 years older than today. Lucas: And that shift is already underway. The data from the Urban Institute I mentioned at the top — that 35 percent of new mortgages going to borrowers over 55 — that's not a blip. That's a structural change. And it's going to reshape everything from mortgage-backed securities to housing policy. Luna: Well, it's a fascinating lens through which to watch the economy adapt to demographics. Thanks, Lucas. Lucas: Thanks, Luna. And for those of you who want to dig deeper, the Urban Institute's Housing Finance Policy Center publishes great data on this. We'll link to it in the show notes.