Courtesy of the graphs to Prof. Smitka who made them in excel using data from CoreLogic – thank you (Apologies if they’re blurry – I couldn’t make them any better than this as they are pictures)
The data for mortgage performance can be found at http://www.corelogic.com/ for anyone who wants the specifics of numbers. You have to sign up with your e-mail in order to download the documents, but they’re a data/consulting company so they don’t send you annoying emails every day.
The recession in 2008 reminds us of why mortgage performance is an important indicator of the economy. During the recession, a lot of subprime loans were being pushed on people who had bad or nonexistent credit. These borrowers did not have income, yet they were still being pressured to get what are sometimes referred to as “liar loans.” This was working as long as house prices were going up because people would take out new mortgage to replace old mortgage. So, for example, in the 1990’s house prices were pretty stable, so this was not disastrous. While there were slight increases and peaks, 2008 was when it really took a hit and home prices dropped and plummeted. This meant that someone who bought a house at the prime time could have had his/her home worth 40% less than the value they thought. As a result, people stopped paying their mortgages because it did not make sense to. The reasoning was that you can’t sell off the house and be able to pay the loan off, so it was a better option to just let the banks repossess your house instead of paying the mortgage.
Though I do not have data from earlier than 2008, it is important background to keep in mind when looking at mortgage performance. The data that is being presented here is from 2010 onward on a quarterly basis (Q1, Q2, Q3, Q4). On the graph “Mortgage Equity,” net homeowner equity has been steadily rising since 2010 (the red line), indicating a more positive trend. Basically, it signifies the value of ownership of the house that represents the current market value (without any remaining mortgage payments). Mortgage debt outstanding (the green line) has stayed relatively constant, though there has been a slight increase since 2013-Q2. In the second graph, “Corelogic Loan-to-Value ratios,” we can see that all values have been steadily decreasing since 2010 as well. These all seem to be good signs.
Overall, mortgages are performing much better today than they did 9 years ago when the recession hit, which is expected. I wonder about the state of home prices as well, and whether this would look different if we were looking at a regional basis (e.g. would we expect mortgage performance to be different in california vs. oklahoma (i’m assuming so), and if so, what kind of difference and how much?) Looking forward to those posts soon.
To address your question of the state of home prices, it seems as if they are improving as well. According to the S&P/Case-Shiller index, home prices have steadily improved since 2012. After a peak in 2013 of almost 14% year over year growth, the index has stabilized to a consistent 5% year over year growth level, starting in August 2014 until present. Information supporting these numbers can be found at https://fred.stlouisfed.org/series/SPCS20RSA#0.
Good, a brief comment pending those by others.
Remember that losing your home is not something we should take lightly. For millions of Americans it was financially ruinous. You lost all your savings, you had no access to credit, you may have also lost your job. And if you have a bad credit rating, you may find it really hard to rent, as many landlords perform a credit check [unlike banks at the time]. So lots of families (I have no data) went from living in middle-class suburbs to living in their cars. A niece teaching elementary school had 5 or more kids who were homeless in a single class, albeit that was in an area hit harder than most.
While in the increase of mortgage performance and home prices is a good case for recovery, I wonder if we’ve rebounded too quickly. Services like Rocket Mortgage are being advertised very heavily and most people who lost their homes and had average/poor credit to begin with probably haven’t majority improved their financial habits. We’ve discussed the issue of affordability previously, and in major cities home ownership just isn’t possible anymore. Is the current housing boom really just rapid recovery or another more concentrated housing bubble?
There’s lots of regional variation, in many parts of the country there’s been no boom, only a bottoming out. How have house prices changed over time relative to family incomes? Is it easy to get a mortgage nowadays?
Note that during a bubble many people were encouraged to buy houses (door-to-door mortgage salesmen), since with rising prices they (i) didn’t need money to do so and (ii) couldn’t lose. Of course if they put much equity into the deal that didn’t turn out to be true, but many went from renting to (briefly) “owning” back to renting. Banks lost tons of money, and we (the economy through lost income, those with real estate equity through capital losses on their largest asset) paid the bill.
To answer the question of how housing prices have changed in relation to family incomes, it seems like the former has been outpacing the latter. According to FRED, Real Disposable Personal Income: Per Capita quickly gained ground starting in 2013, and though it surpassed the number at the height of the bubble, as well as the short peak in 2012, this growth has begun to flatten out over the past two years. Additionally, FRED shows that Household Debt Service Payments as a Percent of Disposable Personal Income has bottomed out since 2014, remaining at its lowest level since 1980. To me, this signals a clear lack of investment, as people seem to still retain fears about buying a home. It doesn’t seem like housing has really made the rebound we have hoped for.
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