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Mortgage debt is rising fast. Nationwide, the average balance owed on a mortgage is $196,014, up 2.5% from the year prior and 6.4% from nine years ago.

You’d expect to hear about soaring mortgage debt in pricey places like New York and San Francisco. But — surprise — the top five states where mortgage debt climbed the fastest in the past 12 months were North Dakota, Texas, South Dakota, Kansas and West Virginia, according to new data from Experian.

To be sure, traditional real estate hotbeds aren’t getting off easy. As far as average mortgage debt goes, Washington, D.C. tops the list at $385,159, followed by California, Hawaii, Maryland, Massachusetts and New Jersey. New York, Virginia and Connecticut are close behind.

And traditionally less expensive markets are catching up quickly.

Over the past nine years, when total debt in states like California and Illinois was essentially flat, mortgage debt soared by 52.29% in North Dakota. It was up sharply in Wyoming (32.36%), Louisiana (27.18%) and Texas (27.08%) as well.

Of course, in these traditionally poorer states, mortgages had plenty of room to grow. For example, over those nine years, average mortgage debt in North Dakota rose from $99,833 to $152,039. While that’s a big increase, a $159,000 mortgage balance still looks great to Californians, who typically owe more than twice as much.

What’s Driving the Trend

The obvious explanation for rising mortgage debt is rising prices, which lead to larger loans.

“This list definitely lines up with trends in median prices,” said Daren Blomquist, senior vice president at ATTOM Data Solutions, which studies the housing market. “States with the highest median home prices mean higher loan amounts for purchase mortgages.”

The overall housing market comeback explains a lot of the increase, but local factors matter too, said Experian’s Susie Henson.

“North Dakota and Wyoming … This is purely related to the oil boom and bust economy,” she said. “When oil was about $60 a barrel, North Dakota had an instant demand for housing because of the flood of workers who came to the state for work. Personal income grew, people bought houses.”

The share of homes that are underwater also contributes, Blomquist said. Underwater homeowners generally can’t refinance or take out home equity loans due to poor credit. (You can view two of your credit scores for free on Credit.com.)

“Homes that have not yet regained their equity lost during the housing downturn by definition will not be selling for higher price points and higher loan amounts, and the owners certainly won’t be able to do cash-out refinance,” he said.

The reverse is also true. As regions soak up their underwater inventory, thanks to rising prices, existing owners can increase their mortgage balances. ATTOM said the number of “seriously underwater” U.S. homeowners has decreased by about 7.1 million since 2012, an average decrease of about 1.4 million each year.

Demographics could also be playing a role.

Older populations mean older mortgages with shrinking balances. More first-time buyers mean “younger” mortgages with larger balances. EllieMae, a mortgage processing company, publishes a “Millennial Tracker” with data on places where young adults make up a large share of buyers. It includes several metro areas in Texas, the Dakotas and Kansas showing young people moving there, which has helped lift the overall mortgage debt total.

For example, millennials, at the time of this writing, make up 37% of buyers in Wichita, Kansas; 44% in Sioux Falls, South Dakota; and 53% in Odessa, Texas. In San Francisco, only 18% are young buyers. In the New York/New Jersey area, only 25% are young buyers. That’s something to think about.

The Return of Low Down Payment Loans 

Another lesson from the data is that low down payment loans are back. Blomquist said his firm’s data shows that the “percent down payment” on new mortgages hit a four-year low in 2016.

According to Zillow, in 2009, fewer mortgages were obtained with 5% or 10% down payments, and nearly half of buyers put 20% or 25% down. In recent years, a 5% down payment had become “just as common as a 20% down payment.” (Here’s how to determine your down payment on a home.)

“Higher home prices, a lot of times, mean lower percent down payments, so that rings true with the cycle,” said Logan Mohtashami, a California mortgage broker and economics expert.

Low down payment home loans are on the long list of suspects to blame for the last decade’s housing bubble. Would-be homebuyers who feel uneasy about low down payment loans can look to places in the country where real estate is cheaper, but as cheaper markets “catch up,” there might be another option — looking in areas they may have thought were too expensive before, such as New England.

The five states where mortgage debt grew the slowest last year were Vermont, Connecticut, Wisconsin, Ohio and Rhode Island. In each state — three of which are in New England — total debt remained essentially flat.

Image: elenaleonova

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