Decrease in Mortgage Debt of Americans

During the first quarter, home equity increased to $6.7 trillion, which is the highest level in four years. This is because homeowners have paid their principal by benefitting from the low borrowing costs to refinance their loans. Based on data from the Federal Reserve, the increase of 7.3 percent was the biggest leap in over 60 years.

According to Richard DeKaser, the deputy chief economist at Parthenon Group in Boston, the increase is the greatest indication that the housing loan debt of Americans is starting to lessen. Moreover, data from Freddie Mac, a government-owned mortgage buyer, shows that one half of the refinanced mortgages during the fourth quarter decreased in loan size.

In addition, as former chairman of the American Bankers Association’s Economic Advisory Committee, DeKaser said that there has been a significant change in the enthusiasm of homeowners to have housing debt. In particular, when the market was thriving, a mortgage was considered as leverage, but it is considered a risk at present.

Based on a study conducted by the Fed released in the previous week, homeowner equity was 41 percent of US residential property value during the first quarter, and this also takes into account homeowners who do not have mortgages. It was during the third quarter of the year 2008 when the homeowner equity share was as high as 43 percent.

In 2007, residential mortgage debt was at its highest at $10.6 trillion, and becoming twice as much in six years. After that, it has decreased to 7 percent because there was a decrease of 23 percent in the value of all residential property.

DeKaser believes that the decline in mortgage debt was because of a fear factor. The bursting of the housing bubble still has one of every 15 people having no job and has convinced a few borrowers the importance of being thrifty. DeKaser adds that people are concerned of declining home prices and the economy as well.

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