The Federal Reserve Bank of New York reported This Week in Real Estate that mortgage debt reached a record high in the second quarter. Despite the higher debt loads, the report found the percentage of mortgage balances that are current is at its highest level of the current expansion, fueled by tighter lending standards and more prudent consumer behavior. Below are a few highlights from the second week of August that influence our business:
Single-Family Starts Continue Improvement in July. According to estimates from the U.S. Housing and Urban Development and Commerce Department, the pace of single-family construction continued to improve in July. After reaching a post-winter low annualized rate of 814,000 in April, single-family starts expanded to an 876,000 pace in July, a 1.3% gain over the revised June estimate. However, single-family starts remain 3.3% lower on a year-to-date basis due to slower months earlier in 2019. Given reduced mortgage interest rates and improved inventory levels, we expect continued modest gains for single-family construction bringing 2019 totals to relatively flat conditions. This matches the signal provided by the NAHB/Wells Fargo HMI, which improved to a positive level of 66 in August. Indeed, single-family permits, a leading indicator, also improved in July, expanding by 1.8%, although remaining lower on a year-to-date basis by 4.7%. On a regional and year-to-date basis, single-family starts are down 12% and 9% in the housing affordability challenged Northeast and West respectively, 8% in the weather and agriculture-focused Midwest, and up almost 2% in the South.
U.S. Mortgage Debt Hits Record, Eclipsing 2008 Peak. U.S. mortgage debt reached a record in the second quarter, exceeding its 2008 peak as the financial crisis unfolded. Mortgage balances rose by $162 billion in the second quarter to $9.406 trillion, surpassing the high of $9.294 trillion in the third quarter of 2008, the Federal Reserve Bank of New York said Tuesday. Mortgages are the largest component of household debt. Mortgage originations, which include refinancings, increased by $130 billion to $474 billion in the second quarter. “The big picture is that when you look at mortgages, which is the biggest piece of household debt, it still looks pretty healthy,” said Michael Feroli, chief U.S. economist at JPMorgan Chase, noting that while household debt has grown, so have incomes. Americans’ mortgage debt dropped by about 15% from the 2008 peak to the trough in the second quarter of 2013 and has climbed slowly since then. Total household debt has been on the rise since mid-2013. It rose by 1.4% from the first quarter to $13.86 trillion, the 20th consecutive quarter of increase. Still, the household debt picture is much different in 2019 than it was 11 years ago, since lending standards are tighter and less debt is delinquent today. “American homeowners are being very prudent in liquidating home equity,” said Sam Khater, Freddie Mac’s chief economist, citing the scars of the last recession. Despite the higher debt loads, Americans appear to be keeping up with their payments. The report found that 95.6% of balances were current, the highest level of the current expansion.
Builder Confidence Trending Higher as Interest Rates Move Lower. Builder confidence in the market for newly-built single-family homes rose one point to 66 in August, according to the latest National Association of Home Builders/Wells Fargo Housing Market Index (HMI) released today. Sentiment levels have held at a solid 64-to-66 level for the past four months. The HMI index gauging current sales conditions increased two points to 73 and the component measuring traffic of prospective buyers rose two points to 50. The measure charting sales expectations in the next six months fell one point to 70. Looking at the three-month moving averages for regional HMI scores, the South moved one point higher to 69, the West was also up one point to 73 and the Midwest inched up a single point to 57. The Northeast fell three points to 57.