Is Mortgage Debt out of Control?

The housing crisis of the last decade was partially caused byunhealthy levels of mortgage debt. Homeowners were using theirhomes as ATMs by refinancing and swapping their equity forcash.

When prices started to fall, many homeowners found themselves ina negative equity situation (where their mortgage was higher thanthe value of their home). As a result, they walked away. Thiscaused prices to fall even further.

Headlines are again talking about record levels of mortgagedebt, making the comparison to the challenges that preceded thehousing crash. However, cumulative debt is not an important datapoint. If we look at the debt as a percentage of disposablepersonal income, we are at an all-time low.

Here’s a visual representation of mortgage debt as apercent of income:

Furthermore, according to a newreport from ATTOM Data Solutions, morethan 1-in-4 homes with a mortgage have at least 50% equity. Thereport explains:

“[O]ver 14.5 million U.S. properties were equity rich— where the combined estimated amount of loans secured by theproperty was 50 percent or less of the property’s estimatedmarket value — up by more than 834,000 from a year ago to anew high as far back as data is available, Q4 2013.”

Bottom Line

Unlike 2008, homeowners have a comfortable level of mortgagedebt and are sitting on massive amounts of home equity. They willnot be walking away from their homes if the housing market beginsto soften.