Good News: Family Mortgage Debt is Not Out of Control!
Some homeowners have recently done a “cash out” refinance. They have taken a portion of their increased equity from their house. Others have sold their homes. They have purchased more expensive homes with larger mortgages. At the same time, first-time buyers have become homeowners. They now have mortgage payments for the first time.
This has caused concern that families are reaching unsustainable levels of mortgage debt. Some are worried that we may be repeating behavior that helped cause the housing crash ten years ago.
Today, I want to assure everyone that this is not the case.
Here is a graph created from data released by the Federal Reserve Board.
It shows the Household Debt Service Ratio for mortgages as a percentage of disposable personal income. The ratio is the total quarterly required mortgage payments divided by total quarterly disposable personal income. In other words, the percentage of spendable income people are using to pay their mortgage.
Today’s ratio of 4.44% is nowhere near the ratio of 7.21% during the peak of the housing bubble. It is at the lowest rate since 1980 (4.38%).
Bottom Line
Many families paid a heavy price because of questionable practices that led to last decade’s housing crash. It seems the American people have learned a lesson and are not repeating that same behavior regarding their mortgage debt.