The housing turmoil of the last decade was partly caused by unhealthy levels of mortgage financial debt. Homeowners were using their homes as ATMs by refinancing and swapping their equity for cash.
When prices started to fall, many homeowners found themselves in a negative equity circumstance (where their mortgage was greater than the value of their home). As a result, they walked away. This caused prices to fall even further.
Headlines are again talking about record levels of mortgage debt, making the comparison to the challenges that forwent the housing crash. However , total debt is not an important data stage. If we look at the debt as a percentage of disposable personal income, we have been at an all-time low.
Here’s a visual representation associated with mortgage debt as a percent associated with income: Additionally, according to a opens in a new window new report from ATTOM Data Solutions, more than 1-in-4 homes with a mortgage have at least 50% collateral. The report explains:
“[O]verificar 14. 5 million U. T. properties were equity rich — where the combined estimated amount of financial loans secured by the property was 50 % or less of the property’s estimated market value — up by over 834, 000 from a year back to a new high as far back as information is available, Q4 2013. ”
Unlike 2008, homeowners have a comfortable level of mortgage debt and are sitting on substantial amounts of home equity. They will not become walking away from their homes when the housing market begins to soften.
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