Is Family Mortgage Debt Out Of Control

Dated: 04/27/2018

Views: 24

Image title

Some homeowners have recently done a “cash out” refinance and have taken a portion of their increased equity from their house. Others have sold their homes and purchased more expensive homes with larger mortgages. At the same time, first-time buyers have become homeowners and now have mortgage payments for the first time.

These developments have caused concern that families might be reaching unsustainable levels of mortgage debt. Some are worried that we may be repeating a behavior that helped precipitate the housing crash ten years ago.

Today, we want to assure everyone that this is not the case. Here is a graph created from data released by the Federal Reserve Board which 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.

Image title

Today’s ratio of 4.44% is nowhere near the ratio of 7.21% during the peak of the housing bubble and is instead at the lowest rate since 1980 (4.38%).

Bill McBride of Calculated Risk recently commented on the ratio:

“The Debt Service Ratio for mortgages is near the low for the last 38 years. This ratio increased rapidly during the housing bubble and continued to increase until 2007. With falling interest rates, and less mortgage debt, the mortgage ratio has declined significantly.”

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.


Read this & other articles

Latest Blog Posts

Embracing Frugality

The book 7 Habits of Highly Effective People has sold over 15 million copies since it was first published in 1989, teaching people all over the world how to live happier, more successful,

Read More

Thinking Of Selling Your Home Why You Need A Pro In Your Corner

With home prices on the rise and buyer demand strong, some sellers may be tempted to try and sell their homes on their own (FSBO) without using the services of a real estate professional.Real estate

Read More

Add Your Rental Payments To Your Credit Report

DO YOU RENT?Mortgage and installment loansThese LOANS are evaluated by calculating the amount of the original loan versus the remaining unpaid balance. Installment loans are typically car loans or

Read More

Just Listed Homes In Oakland County Michigan

Justed Listed Homes in Oakland County! Get a free weekly list of new homes.http://kendrapack.mi.exprealty.com/ask

Read More