Outstanding Mortgage Debt Rises for First Time Since 2009
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Total mortgage debt owned by Americans rose for the first time this year after falling every year since 2009.
A new study by the Federal Reserve Bank of New York shows that real household mortgage debt outstanding rose from $8.66 trillion to $8.67 trillion from 2014 to 2015. Since this data ends in the second quarter of 2015, some analysts believe that outstanding mortgage debt will continuing to rise, and may see a strong increase in 2016 as more home-buying activity spurs the broader market.
Total mortgage debt owned by Americans rose for the first time this year after falling every year since 2009.
A new study by the Federal Reserve Bank of New York shows that real household mortgage debt outstanding rose from $8.66 trillion to $8.67 trillion from 2014 to 2015. Since this data ends in the second quarter of 2015, some analysts believe that outstanding mortgage debt will continuing to rise, and may see a strong increase in 2016 as more home-buying activity spurs the broader market.
When analyzing inflows and outflows, the Fed noted that all types of homebuyers have seen seeing increases in mortgage inflows, from low-score first-time borrowers to investors. However, the portion of first-time borrowers relative to other types of homebuyers remains far lower than it was from 1999 to 2007, but has risen since 2011.
A Lack of Affordable Housing
The Fed study suggests that the decline in first-time home buyers as a share of total home purchasing activity could result from tighter lending standards, but it also argues that lower-score individuals’ “demand for owner-occupied housing (and thus mortgage debt) may have declined more than high-score individuals” as a result of weaker purchasing power in the new economy. “Those with lower scores tend to be younger and less well educated–groups that were harder hit by the recession,” the paper notes.
On the other hand, the paper also points out that mortgage defaults “have subsided” in an indication that those who do own homes can still afford the payments, unlike in the pre-2008 economy in which defaults spiked to record levels.
Purchases Up Sharply
In another study by the Mortgage Bankers Association, mortgage application activity rose and purchases went up sharply. According to the MBA study, purchase applications rose 29 percent on a year-over-year, seasonally adjusted basis. This news comes despite an increase in interest rates, which have risen to 4.14 percent for a 30-year fixed-rate mortgage with an 80 percent loan-to-value ratio. Interest rates rose for almost all mortgage types.
While the purchasing applications index has risen sharply from low levels in 2014 throughout this year, they remain far below the levels seen throughout the 2000s and are roughly similar to the amount of activity seen in 1996.
Although purchasing remains up, the MBA also noted in a separate study that the availability of mortgage credit has fallen. The Mortgage Credit Availability Index, or MCAI, fell 0.8 percent in November, which the MBA says indicates, “lending standards are tightening”.
Despite the decline in recent months, conventional mortgages prove more available than they have been at any time since the financial crisis, but credit availability may tighten further in 2016 if banks raise their lending standards.
