Housing Finance at a Glance: Monthly Chartbooks
The October 2019 edition of At A Glance, the Housing Finance Policy Center’s reference guide for mortgage and housing market data, includes updated figures describing the refinance share by channel, nonbank origination shares, housing credit availability and originator profitability.
Households’ mortgage debt service ratio falls to its lowest level on record.
Data from the Federal Reserve Board shows that household balance sheets appear very healthy. The household debt service ratio (DSR), which is the ratio of total required household debt payments to total disposable income on a quarterly basis, has been steadily falling since the onset of the Great Recession. After reaching a series peak of 13.2 percent in 2007, households’ DSR has dropped to 9.7 percent in the second quarter of 2019, a low since the inception of the series in 1980.
The household DSR is the sum of the consumer and mortgage DSRs. The consumer DSR is comprised of the total scheduled payments on revolving debt such as credit cards and non-revolving debt such as auto and student loans, relative to total disposable income. The mortgage DSR includes the total required mortgage payments as a share of total disposable income.
A decline in mortgage DSRs and to a lesser extent consumer DSRs, contributed to the drop in the overall household DSR between 2008 and 2013. The decrease in the consumer and mortgage DSRs during this period reflects household deleveraging in the wake of the Great Recession, characterized by higher default rates, tighter lending standards, softer aggregate demand, and greater risk aversion. Another factor was the massive refinancing wave post-recession as mortgage rates fell to historic levels, allowing homeowners to reduce their monthly mortgage payment and by extension, the mortgage DSR.
Since 2013, the consumer DSR has trended upward as the economy has improved considerably. The Federal Reserve Board’s Consumer Credit report, a source for the calculation of the consumer DSR, indicates that growth in student loan debt was joined by the growth in auto loan debt in beginning in 2010 and the growth in credit card debt beginning in 2013.
The growth in the consumer DSR since 2013 has been offset by a continued decline in the mortgage DSR, which has fallen to its lowest level on record. Our estimates suggest that the decline in the mortgage DSR is largely due to growth in disposable personal income (DPI). Since 2010 approximately 85 percent of the decline in the mortgage DSR stems from DPI growth over this period while lower mortgage rates account for the rest. Mortgage debt outstanding was largely flat over this same time frame, despite growth in population, incomes and home prices. Indeed, over the period from 2010 on, the homeownership rate has dropped and home equity extraction has been modest.
According to the Federal Reserve Bank of New York, total outstanding household debt has risen steadily for the past five years. Nevertheless, the household DSR continues to fall as the mortgage DSR has dropped to a record low level amid faster income growth and lower rates. As a result, households in aggregate have the lowest levels of debt payments relative to their incomes since at least 1980.
July 29 Chartbook call with guest Richard Green
April 29th Chartbook call with guest Dave Stevens
January 30th Chartbook call with guest Dave Stevens