The debt of American households is on pace to surpass the prior peak debt level of 2008, led by non-mortgage debt, LendingTree found in its Consumer Debt Outlook for June. Mortgages may represent the largest debt for households, but as a percentage of disposable income, home loans are comprising less of a liability, LendingTree found.
In a research report, the online lender, which analyzed data from the Federal Reserve, said that mortgage-related household debt has declined 5.5%, while consumer credit, which includes revolving credit and installment loans, jumped 45%. Of that, 42% was student loan debt. What’s more, LendingTree found that American household debt is on track to hit $1 trillion above the 2008 peak by the end of June. The debt figure has been increasing at a 3.4% annual rate and includes mortgage debt.
By the end of the second quarter, LendingTree is forecasting total mortgage and consumer debt to reach $15.7 trillion compared with $14.7 trillion 10 years ago. During the past decade, credit card debt, student loans and car loans have increased 45% and are set to hit $4 trillion by December. Mortgage balances currently make up about 68% of disposable income, while credit card balances are under 7% of income. In 2008, mortgage balances were as high as 98%, while credit card balances accounted for 10% of income. Millennials, noted LendingTree, are underrepresented in the homeownership rates. “Homeowners today, on average, have significant equity in their homes,” said LendingTree in the report. “Ten years ago, equity was virtually nonexistent.”
While mortgages aren’t as much of a burden on homeowners as they were during the housing crash, the burden is still increasing thanks to rising mortgage rates and growing property values. According to research from online real estate company Zillow, during the first three months of the year, monthly mortgage payments accounted for 1% of the median income. The last time the mortgage burden was that high was in the second quarter of 2009.
Zillow found that the share of income needed to cover the monthly mortgage payment increased to 17.1% in the first quarter of 2018, which is up 1.2 percentage points from 15.9% in the fourth quarter of 2017. It remains below the historical average of 21.1% from 1985 through 2000. What’s more, mortgage payments haven’t accounted for that percentage of income since the second quarter of 2009, when mortgages were 17.5% of median income. Zillow noted that mortgages were becoming more affordable back then as home prices and interest rates were declining owing to the recession. The share of income that went toward a monthly mortgage payment hit a peak of 25.4% in 2006 amid the real estate bubble, noted Zillow.