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.
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
“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.”
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.