Mortgage Debt Still Weighs on Consumers

By now the arguments that one reason the recovery is weak is that everyone is suffering from an overhang and excess of debt are well known.  Home mortgages as the largest portion of household debt in the US are the issue.   A glance at the Federal Reserve’s Flow of Funds data, released last Friday, shows that while progress in reducing mortgage debt is being made, the process is only just begun.   From 1950, when the data begins, until 2007, mortgage debt owed by America’s households never declined from one year to the next.  In 2008, as housing turned into the bust and the economy slumped, mortgage debt owed began to decline. That decline continues through the most recent data for the first quarter of this year.  However, there is a long way to go.   At 72% of household liabilities, mortgages are still an unusually large portion of consumer debts; the average from 1986 though 2000 was 66.2%.  The decline in mortgage debt levels reflects a combination of factors from foreclosures to slower home sales to reluctance to take on debt with home equity loans. 

The chart gives some sense of how high mortgage debt is compared to total household debts. The peak in 1992-93 was in the aftermath of the 1990-91 recession which included a weak period for housing.  In contrast, the beginnings of the housing boom in 2000-2002 were so strong that there was not even any slowing growth in mortgages following the stock market collapse and the 2001 recession.  Looking forward we can hope for slow progress in reducing the debt levels.  Data from the S&P/Experian Consumer Credit Default Indices shows that new defaults among both first and second mortgages are gradually declining.

Mortgage Debt Share in House Hold Debts Still High

Data from Federal Reserve Flow of Funds

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