Mostly taxpayers, not banks.
By wolf richter For wolf street,
Mortgage balances jumped as home prices rose in recent years, requiring more debt to finance the same home, and so mortgage balances in Q4 grew 2.2% or $253 billion from the previous quarter, and 9% or $1 trillion has increased. From a year ago, even though home sales volume fell 34% in Q4. Mortgage balances have now reached $11.9 trillion.
Mortgage balances grew 25% in the three-year period that covered the Fed’s pandemic-era money-printing binge and interest-rate suppression, according to New York Fed data on household debt. Even after an 11% decline from the peak in June 2022, the median home price increased by 34% over the same period, according to the National Association of Realtors.
The chart also shows mortgage debt as a percentage of disposable income (green), a measure of the total burden of this mortgage debt on households. It shows why the housing bust was so messy in 2005-2012, and it also shows one reason why the same type of mortgage crisis is unlikely now. But house price inflation since 2020 has started to take its toll on the ratio – post-pandemic money stopped boosting disposable income:
Home equity line of credit (HELOC) balance Finally seen for the first time in years. We’ve been expecting this increase for some time because cash-out refs may no longer make sense when mortgage rates rise in 2022. You don’t want to refinance the entire 3% $500,000 mortgage with a 6% $600,000 mortgage. Talk about payment shock! But you could keep the original 3% mortgage and add a 6% HELOC for $100,000, and it would be much more manageable.
HELOCs are one of the classic ways to use home equity as an ATM. But cash-out refunds at ultra-low interest rates nearly killed the HELOC business. And now it’s getting back in baby steps.
HELOC balances increased 5.0% from Q3, or $16 billion, to $340 billion in Q4, after crawling to very low levels since early 2021.
Mortgage and HELOC delinquency Rises from historical lows but remains very low.
For mortgages, the 30-day-plus-delinquency rate – the rate of borrowers who transition to new delinquency – ticked up for the third month in a row to 2.3% (red line in the chart below), which was still below any prior – Pandemic low in data going back to 2003.
During the Good Times before the Housing Bust 1, in 2005, the crime rate dropped to a low of 4.6%. During the Good Times before the pandemic, the crime rate had peaked at 3.4%.
HELOCs’ 30-plus-day delinquency rate fell to 2.0% for the second month in a row, right in line with the Good Times:
The remainder of mortgages and HELOCs converted into serious delinquencies (more than 90 days delinquent) remained near historic lows. For mortgages, the 90-plus delinquency rate ticked up to 0.43%, the second lowest in the data, just up from 0.37% in Q3. During Good Times, the serious crime rate was around 1%, and during Bad Times it rose to 9%.
For HELOCs, the severely delinquent amount fell to 0.9% from Q4:
foreclosures Has risen above historical lows but remains near historical lows. In Q4, the number of consumers with foreclosures reached 34,280, down just below Q2.
During the good times before the pandemic, about 70,000 consumers were in foreclosure, more than double the current number. At its low point, during the Good Times before 2006, there were about 150,000 consumers with foreclosures, more than four times the current number.
Should foreclosures eventually return to Good Times normal, they’ll have to double down to get there, which will be normal. But so far, that hasn’t happened yet.
The Fed Could Rupture the Housing Bust,
The financial crisis, which resulted from the mortgage crisis, put the entire US banking system, and thus the global banking system, at risk, and a major disturbance occurred. It was a special kind of event.
Other special programs may come to the US financial system, but it is unlikely to come from mortgages. Here’s what this data tells us. And the way the mortgage market has changed since the financial crisis tells us that too – because it’s now the taxpayer who’s on the hook for most mortgage loans, and almost all risky mortgage loans, not the bank.
The classic consequences on mortgages and mortgage holders that come with a housing bust will therefore remain in the classic category for the private sector – and the financial crisis will not enter the bloodbath category.
The largest portion of the damage will be absorbed by taxpayers as they are involved in guaranteeing most mortgages secured in MBS and subprime mortgages, and low-down-payment mortgages (through the FHA, VA, etc.) Is. .), and nobody cares about the taxpayer, not even the taxpayers themselves.
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