Although household debt increased somewhat in the final quarter of 2015, most is attributed to auto and student loan debt. Mortgage balances, which are the leading element of household debt, stood fairly flat in the fourth quarter, according to the New York Federal Reserve Quarterly Report on Household Debt and Credit.
By the end of the year, total household debt reached $12.12 trillion in the state, a 0.4 percent increase from the third quarter of 2015, or a $51 billion rise. However, household debt remains 4.4 percent lower than its highest level in the third quarter of 2008, when it hit $12.68 trillion.
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Mortgage balances comprise $8.25 trillion of the $12.12 trillion fourth-quarter total debt across the country — representing an $11 billion drop from the prior quarter. Home equity lines of credit (HELOC) decreased by $5 billion to reach $487 billion total.
Mortgage originations, which include new mortgage loans and refinanced mortgages, declined slightly quarter-over-quarter to $437 billion.
“Mortgages are being paid down faster, helping to offset the generally rising volume of originations,” said Andrew Haughwout, New York Fed senior vice president.
Foreclosures hit drastic low in 2015, delinquencies continue steady dwindle
There were 104,000 individual new foreclosures in the fourth quarter, which was a slight rise from the previous quarter’s 16-year low. Nevertheless, 2015 proved to be a positive year for foreclosure rates across the nation.
Also noted in the report is a decline in mortgage delinquencies, which were coming off a steady five-year regression. In the third quarter of 2015, 2.3 percent of mortgage balances were 90-days delinquent, whereas only 2.2 percent were 90-days delinquent in the final quarter. The transition rate into mortgage delinquency also dropped to 1.1 percent.
[graphiq id=”bYkczuFaxTf” title=”Home Foreclosures in New York” width=”600″ height=”651″ url=”https://w.graphiq.com/w/bYkczuFaxTf” link=”http://places.findthehome.com/l/48/New-York” link_text=”Home Foreclosures in New York | FindTheHome”]
Can the U.S. housing market better handle financial stress?
New York Fed President and CEO William C. Dudley held a press briefing on the report, explaining his position on why he believes the household sector is in better shape now versus the early 2000s. More specifically, Dudley outlines how the U.S. housing market is better equipped to handle economic shocks than it was prior to 2008:
First, home values across the nation are growing 5 percent year-over-year, but rather than borrowing against their mortgages, homeowners are responding by paying down their loans as planned — keeping balances stable. Due to lower interest rates, shorter loan terms and increasing age of existing loans, households stick to amortization schedules, build equity and contribute to the overall market’s ability to defend against another Lehman-like crisis.
Dudley points out a second motivator behind a more unwavering housing market compared to pre-recession years: the decline in delinquency rates and new foreclosures, which indicate a more challenging loan procurement process. The borrower profile has shifted toward low-risk homeowners with high credit scores and stable incomes. According to the report, 56 percent of all new mortgage balances came from credit scores of 780 or higher.
While he remains optimistic, Dudley is realistic with the data findings, as not all households and local markets can contribute, regardless of low interest rates and a growing economy.
“Borrowers with little equity, low credit scores and slow income growth face difficulties refinancing into low rate mortgages. As a result, this subset of the population has been less able to deleverage and still faces relatively high debt service costs, which constrains their consumption, investment and saving behavior,” he said.
“So, even within what looks to be a stable overall mortgage market, there are some things that we must continue to monitor.”
Further, difficulties such as student loan debt constrain households on a case-by-case basis, Dudley points out. Student loan debt increased by $29 billion to hit $1.23 trillion in the fourth quarter.
