The U.S mortgage market is proving to be very resilient, at least for now, as in the second quarter outstanding mortgage debt went down 0.7% to $8.12 trillion, despite the rise in both house sales and prices showing a potentially welcome improvement in personal debt.
The fall happened as Americans took out new mortgages valued at around $466 billion, the highest number in nearly two years. This show that mortgage debt is being repaid at roughly the same pace new ones are being issued. This more than likely reflects the wariness of home owners in the financial system, despite the government bailouts.
Home prices rose almost 5% in May according to the latest figures, jumping 10% in Denver and 9.7% in San Francisco, pushing home ownership out of the reach of many people at least for now.
As a result, home-equity lines of credit went down by staggering $11 billion between April and June, falling to just under $500 billion. The number is significantly lower than its peak of $714 billion, six years ago.
Despite this, a report by the Federal Reserve Bank of New York shows home financing is in significantly better shape than it was during the recession. With only 95,000 people given foreclosure notices in the second quarter, representing the lowest number since accurate records began on this sixteen years ago.
The number of new mortgages has also risen this quarter, making it the fourth straight rise in a row, but mortgage debt is still unchanged, mostly due to refinancing which has allowed buyers to pay less interest and more principal each year, as well as more people making larger down payments to avoid significant debt.
More Sales, Fewer Homeowners
However, despite the increase in sales, fewer Americans are homeowners than in the last four decades. The number has fallen to only 63.4%, down from 67 percent in 2007. One of the key elements is that people need spotless credit to get an affordable home loan.
In areas where credit is more easily given, such as car loans, the uptake is ramping up, as new car related loans increase to $119 billion, a ten year high which puts outstanding auto loans over the $1 trillion mark for the very first time. When, rather than if, the Fed raises its rates this whole picture could dramatically change though.