American Debt: Mortgage Debt Reaches $10.04 Trillion in Q4 2020

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American Debt: Mortgage Debt Reaches $10.04 Trillion in Q4 2020

In the fourth quarter of 2020, mortgage balances increased $182 billion to $10.04 trillion, according to the most recent information from the Federal Reserve Bank of New York’s Quarterly Report on Household Debt and Credit. The amount owed on housing debt has increased to $10.39 trillion, surpassing the high of $9.99 trillion reached in the third quarter of 2008. Refinances included in newly originated mortgages hit a record high of $1.2 trillion, exceeding in nominal terms the volumes observed during the historic refinancing boom in the third quarter of 2003, according to a study from the New York Fed.

Mortgage amounts and household or consumer debt have been gradually rising for a while. They have risen over the 2008 peak and are still climbing. Higher mortgage balances are seen to be a sign of a more robust recovery or that the economy has recovered more quickly overall.

Key Takeaways

  • As of the fourth quarter of 2020, there were $10.04 trillion worth of mortgages outstanding in the United States.
  • Debt incurred for housing has surpassed 2008 levels.
  • From the fourth quarter of 2019, serious delinquencies decreased.
  • Increasing restrictions contribute to stabilizing the economy.

Mortgage Debt Seems Like a Good Bet for Lenders

In the fourth quarter of 2020, the median credit score of borrowers for new mortgages was steady at 786, showing a large number of refinances that were still in the very excellent category.

Even better, even if only marginally, the percentage of extremely overdue mortgages—those with no payments in 90 days or more—kept rising. Mortgage debt has the second-lowest delinquency rate of any household loan behind home equity debt. In Q4 2020, there were 0.6% more mortgages that were seriously delinquent than there were in Q4 2019, a decrease of 1.1%.

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TransUnion utilizes different data from the Federal Reserve, which uses Consumer Credit Panel/Equifax data, to calculate mortgage default rates longer than 90 days. The government claims that year over year, fewer mortgage accounts are falling behind on payments. According to TransUnion’s most current statistics, the proportion of past-due accounts decreased from 1.16% in Q4 2019 to 0.83% in Q4 2020. Remember that the COVID-19 pandemic-related deferrals, blocked accounts, and past-due payments are included in the current rate of delinquency.

Mortgage Debt Fuels Total Household Debt

The greatest portion of total household debt, which increased $206 billion to an all-time high of $14.56 trillion, is made up of mortgage debt. 69% of all household debt is in mortgage debt.

From $752 billion in the fourth quarter of 2019 to $1.2 trillion in the fourth quarter of 2020, mortgage originations—which include both new mortgages and refinances—increased. According to the National Association of Realtors, existing home sales increased 5.6% in 2020, the highest level since before the Great Recession (NAR).

TransUnion estimates that the average mortgage debt per borrower was $220,224 in the fourth quarter of 2020. Up from the 50.1 million accounts reported in the first quarter of 2019, there are now 50.5 million mortgage accounts overall. The agency claims that since interest rates are so low, borrowers have been able to afford bigger payments.

Where Are Mortgage Rates Going?

According to Kiplinger, mortgage rates are now at some of their lowest peaks. The lowest 30-year fixed mortgage rate since Freddie Mac began collecting data on rates in 1971 was 2.7% in January 2021. If you haven’t already locked in a rate, you could notice a little rise. Despite the Fed’s advice to maintain short-term rates close to zero, the group predicts that rates may begin to rise modestly in the future. The firm predicts that by the end of 2021, the 10-year Treasury rate, which is now 1.3%, may reach around 2%.

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What Does Increasing Mortgage Debt Mean?

Is the increase in household debt a positive development or a sign that individuals are about to overextend themselves and cause another crash? The International Monetary Fund (IMF) claims that the economy benefits from increased household debt, which includes mortgage debt. This is so because it reduces unemployment, particularly in industrialized countries like the United States.

The environment is the cause of this. Consumers are tempted to take on additional debt since interest rates are so low. Things are being kept under control by more rules, particularly since the financial crisis. The likelihood of customers defaulting on their debt has significantly decreased since lenders tightened their borrowing criteria in the wake of the Great Recession.

The Bottom Line

Rising mortgage balances in the fourth quarter of 2020 don’t seem to be a reason for concern, unlike when they were while the Great Recession was just getting started. Fewer customers are overdue on their loans, many of those who are behind are catching up and foreclosures are at historic lows. It will be fascinating to observe how the constrained supply, increasing interest rates, and the tax package impact the housing market and mortgage borrowers as the year goes on.

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