Amer­i­cans take on more mort­gage debt as hous­ing re­cov­ers

Malta Independent - - BUSINESS -

More Amer­i­cans are buy­ing houses and tak­ing on mort­gage debt at a time when higher home prices are also boost­ing their own­er­ship stakes.

The trends, re­vealed in a Fed­eral Re­serve re­port Fri­day, re­flect the heal­ing of the U.S. hous­ing mar­ket nearly a decade af­ter the real es­tate bub­ble burst.

The Fed’s quar­terly re­port on house­hold wealth showed that Amer­i­cans’ net worth climbed 1.2 per­cent dur­ing the April-June quar­ter, to $89.1 tril­lion. Stock and mu­tual fund port­fo­lios in­creased 2.3 per­cent to $21.2 tril­lion. Hous­ing wealth rose 1.9 per­cent to $25.6 tril­lion. The value of check­ing and sav­ings ac­counts, as well as pen­sion en­ti­tle­ments, also climbed.

House­hold wealth, or net worth, re­flects the value of homes, stocks and other as­sets mi­nus mort­gages, credit card debt and other bor­row­ing. The Fed’s fig­ures aren’t ad­justed for pop­u­la­tion growth or in­fla­tion.

Mort­gage debt rose 2.5 per­cent in the sec­ond quar­ter at a sea­son­ally ad­justed an­nual rate, the big­gest quar­terly gain in more than eight years. The in­crease ap­peared to re­flect ris­ing home sales, which reached a nine-year high in June be­fore slip­ping the fol­low­ing month. Higher sales mean that more peo­ple are tak­ing on mort­gages.

But it also re­flects a re­turn to a nor­mal hous­ing mar­ket. More pur­chases are be­ing made by ac­tual home­own­ers and fewer by in­vestors, who fre­quently pay with cash. All-cash sales fell to their low­est level in nearly seven years in July.

Still, the in­crease in mort­gage debt re­mains tame by his­tor­i­cal stan­dards. Mort­gage debt jumped at dou­ble-digit rates in 2004 and 2005, to­ward the end of last decade’s hous­ing bub­ble. Amer­i­cans were cash­ing out the eq­uity in their homes while re­fi­nanc­ing their mort­gages and us­ing the pro­ceeds to sup­port greater spend­ing.

Home prices be­gan to re­bound in 2012, which has in­creased hous­ing wealth. Own­er­ship eq­uity now equals 57.1 per­cent of the value of Amer­i­cans’ homes, the high­est level since 2006. That fig­ure had plunged as low as 36 per­cent dur­ing the Great Re­ces­sion, which of­fi­cially be­gan in De­cem­ber 2007 and ended in June 2009.

The over­all in­crease in house­hold wealth doc­u­mented by the Fed’s re­port has likely been a boost to con­fi­dence. When Amer­i­cans feel wealth­ier, they are likely to spend more, thereby pro­vid­ing a lift to the econ­omy.

Still, most wealth in the U.S. is highly con­cen­trated, and so the gains ben­e­fit a rel­a­tively nar­row por­tion of the pop­u­la­tion. Roughly 10 per­cent of Amer­i­cans own 80 per­cent of stocks.

Hous­ing wealth is more widely spread but has nar­rowed re­cently. Dur­ing the sec­ond quar­ter, the U.S. home­own­er­ship rate matched its low­est level in 51 years — 62.9 per­cent, a half-point lower than a year ear­lier.

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