Americans Are Borrowing Money Again. So Far, So Good.

by Real estate financingMission+
5 minutes read

Seven years after the great deleveraging began, U.S. households are borrowing again. Consumers took on $136 billion worth of new debt in the first three months of this year, nearly all of it in the form of mortgages, according to a report out today from the Federal Reserve Bank of New York.
That’s not bad. As a whole, today’s borrowers are low risk. Their credit scores are strong and they’re paying their bills on time. In fact, the share of debt going bad is at its lowest level since the Fed started tracking data in 1999, an improvement its experts attribute largely to the strength of home loans.

So what?

The economy and our psyches still haven’t fully recovered from the credit crisis that drove millions of people from their homes and pushed the country into a deep recession.
As a country, we  got rid of debt during those years, either by paying it down willingly or through bankruptcies and painful foreclosures. But responsible borrowing keeps the economy chugging along. And at today’s historically low interest rates, taking on debt can make a lot of sense.
That’s especially true when it comes to housing. Without mortgages, home sales would grind to a halt. And in today’s cautious lending environment — some would say too cautious — there’s no worry that we’re returning to the freewheeling days of easy money.

Here are four ways to look at mortgage borrowing today.

Homeowners have more mortgage debt

Households took on $120 billion in new mortgage debt at the beginning of the year, bringing the total dollar value of U.S. home loans to its highest since 2011.

mortgage debt

As mortgage rates fell in the first three months of 2016, homeowners also paid off or refinanced their home-equity lines of credit, which tend to be more expensive. All told, households carry almost $9 trillion in mortgage debt.

Those home loans are pretty safe bets

Today’s mortgage borrowers have stellar credit scores. In the first three months of this year, 58 percent of new mortgage dollars went to homeowners with credit scores higher than 760, according to the New York Fed and Equifax.
Now wonder fewer of them were seriously behind on their payments, continuing a five-year trend. Only 2.1 percent of mortgage balances were 90 days late at the end of March, and only 0.9 percent went delinquent.

mortgage debt

There are fewer borrowers

This is interesting — even while the dollar value of mortgage debt grew, fewer people took out home loans in the first three months of this year.
Sure, some people are buying with cash. Or fewer people are buying houses.  We know that rate of homeownership is falling and was down to 63.5 percent in the first three months of this year.
But if there are fewer borrowers, why would mortgage debt be piling up? One reason might be that people who are buying houses are spending more money on them. As prices risethey need bigger loans.

mortgage debt

Foreclosures are way down

About 97,000 homeowners had a foreclosure show up on their credit reports between Jan. 1 and March 31. That sounds like a lot, but it’s close to the lowest level the Fed has seen in 17 years, which is how long it’s been tracking the data.

mortgage debt

— Note: This post has been updated to correct the axis label in the fourth chart.

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