Some homeowners have recently done a “cash out” refinance andhave taken a portion of their increased equity from their house. Others havesold their homes and purchased more expensive homes with larger mortgages. Atthe same time, first-time buyers have become homeowners and now have mortgagepayments for the first time.
These developments have caused concern that families might be reachingunsustainable levels of mortgage debt. Some are worried that we may berepeating 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 agraph created from data released by the Federal Reserve Board whichshows the HouseholdDebt Service Ratio for mortgages as a percentage of disposablepersonal income. The ratio is the total quarterly required mortgage paymentsdivided by total quarterly disposable personal income. In other words, thepercentage 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 (4.38%).
Bill McBride of Calculated Risk recently commented on the ratio:
“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.”
Many 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.