WASHINGTON—Mortgage debt in the United States hit a record in the second quarter of 2019, exceeding its 2008 peak, but analysts are offering reassurances it is not a sign the market is headed for another crisis.
According to the Federal Reserve Bank of New York, mortgage balances rose $162 billion during Q2 to $9.406 trillion, surpassing the high of $9.294 trillion in Q3 2008. The latest figures show mortgages remain the largest component of household debt. Mortgage originations, which include refinancings, increased by $130 billion to $474 billion in the second quarter. The figures are nominal, meaning they aren’t adjusted for inflation, noted the Wall Street Journal.
“The big picture is that when you look at mortgages, which is the biggest piece of [household debt], it still looks pretty healthy,” Michael Feroli, chief U.S. economist at JPMorgan Chase, told the Journal, adding that while household debt has grown, so have incomes.
The Journal’s analysis noted the milestone for mortgage debt has been long in the making. Americans’ mortgage debt dropped by about 15% from the 2008 peak to the trough in the second quarter of 2013 and has climbed slowly since then.
On the Rise
Total household debt has been on the rise since mid-2013. It rose by 1.4% from the first quarter to $13.86 trillion, the 20th consecutive quarter of increase, the Journal added.
“Still, the household debt picture is much different in 2019 than it was 11 years ago, since lending standards are tighter and less debt is delinquent today,” the Journal reported.
As CUToday.info reported earlier, the New York Fed’s data show Q2 saw a steep drop in the 30-year mortgage rate, which boosted borrowers’ incentive to take out a mortgage or refinance. The average rate on a 30-year fixed-rate mortgage dropped below 4% for the first time since early last year.
More ‘Interesting’ Data
“What’s more interesting is when you look at the service burden, we don’t have more debt,” Diane Swonk, chief economist at Grant Thornton, told the Wall Street Journal.
Also worth noting: low inventories of homes have led to high prices, which have not just contributed to growing mortgage balances but have also been a factor in more Americans tapping their home equity for cash.
Refinancing accounted for about half of new mortgages in the second quarter, according to Guy Cecala, chief executive at Inside Mortgage Finance, an industry research group, the Journal reported.
Data show borrowers who refinanced in the second quarter and chose the option to cash out withdrew an estimated $17.5 billion in equity out of their homes, according to Freddie Mac.
“While that was $2.1 billion higher than the second quarter of last year, it remains well below the prerecession peak of $84 billion cashed out in the second quarter of 2006,” the Journal reported.