Improved Household Debt Levels Could Insulate Against a Downturn


You can cut the numbers in several ways, but no matter
the way it is reported, American households are in relatively good shape when
it comes to mortgage debt. While this isn’t a number many homeowners think
about after they get up from the closing table, CoreLogic points out that it could
be very important in the inevitable next recession.

Ralph McLaughlin, writing in CoreLogic’s Insights blog,
says that mortgage debt fell to 64.6 percent of total household debt in the
third quarter of this year, the lowest share since the first quarter of
.   Looked at another way, mortgage debt as a
share of disposable household income it at 65.9 percent, the lowest since the
second quarter of 2001.



The total mortgage debt grew by a
slight 0.1 percent in the third quarter to $10.3 trillion or $131,463 per
owner-occupied household. The per-household figure is only slightly higher than
in the second quarter which was the lowest since 2004.



Then of course there is the increase
in the value of homes.  Equity grew by an
inflation-adjusted 3.6 percent over the past year and homeowner’s real estate
assets as a share of their total worth held steady at 20.5 percent.

The prolonged recovery and expansion
have helped households who were underwater due to the housing crisis and the
recession that followed float to the surface. 
CoreLogic notes that only 4.1 percent of households nationwide are in a
negative equity position
, down from 5.0 percent last year, and a far cry from
the 25.9 percent that were underwater in the first quarter of 2010.



Still, there are areas in the country,
primarily large Florida cities, that still have elevated rates of negative
. But this situation has improved dramatically in some of those places
over the last year.  Las Vegas which,
along with Phoenix, led the nation in foreclosures for several years as housing
prices collapsed, has seen the share of households in negative equity drop from
10.3 percent to 5.1 percent over the last year. Three Florida cities, Lakeland,
Orlando, and Ocala along with Detroit have seen improvements ranging from 2.7
to 3.9 percent.



McLaughlin says all of this means that households could be in much
better shape than they were ten years ago should a recession happen. “Low
homeowner equity at the cusp of the Great Recession put many households at risk
of foreclosure, so increases in equity puts them in a better position to
weather the impact of an economic downturn

A second benefit could accrue to
investors and lenders. Holders of mortgage notes can have a degree of certainty
that their portfolios are in better shape now than during the last round.  Last, housing markets that were hit hard
during the Great Recession are seeing significant increases in homeowner
equity, which will help these areas minimize concentrated risk of foreclosures

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