HAS IT REALLY ???

*** Mortgage Growth Has Stalled, and Homeowners Are to Blame *** By: John Carney *** ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ Lots of people would like to blame the banks for holding lending standards too tight. The banks often blame the regulators—for making them hold standards too tight. But it turns out that it may just be the fault of homeowners. They’re just paying down their mortgages far more than in the past. The latest report on household debt from the New York Fed shows that mortgage debt—the largest category of household debt— has been more or less flat since 2012. This is all the more surprising because home prices have been recovering at a brisk pace in recent years. Prior to the financial crisis, home prices and mortgage debt moved together. Between 2000 and 2006, both roughly doubled. That made sense, as rising home prices both meant that people had to borrow more to purchase homes and had more equity in their homes to withdraw through refinancing or home equity loans. That’s not happening now. Home prices are up by around one-third since the recovery, but mortgage debt is up just 1%. So rising prices are no longer driving up mortgage debt. So what’s going on? A team of researchers from the Federal Reserve Bank of New York looked at the phenomenon for their blog, Liberty Street Economics. They found that a major factor is the growth of principal pay-downs. Back in 2006, households paid down 2.1% of their mortgage balance. Last year, they paid down 3.5% of their balance. Low interest rates play a role here. When rates are lower, the same dollar amount of mortgage payment allows a household to pay off a greater portion of their principal. We’re not only in a low-interest rate environment, we’re also in a tighter lending environment in which a much larger share of mortgages go to people with good credit scores. So you have lending skewed toward those who can borrow at the lowest rates in an already low rate environment. A double whammy. What’s more, the rising interest-rate differential between the 30-year and the 15-year mortgage has given households an added incentive to shorten the term of their loans. This means that each dollar of their monthly payment pays down more of their mortgage principal. Meanwhile, the existing inventory of loans is getting older, which means the payments due are getting more and more tilted toward principal repayment. The results are quite dramatic. Since 2008, the aggregate mortgage payment has fallen by 8%. But principal payments have risen 41%. People are paying less on their mortgages overall while still paying down more of their principal. Other factors are at play, as well. Purchase loans, which add to the outstanding balance because of home price appreciation and because sellers have often paid down some of their principal, haven’t been adding as much as they once did. Equity withdrawal from home equity lines of credit and cash-out refinancings are down too. This isn’t likely to change soon. The households who refinanced during the 2012 and 2013 refi boom are not likely to refi again, which means their loans will continue to age and their payments increasingly tilt toward paying down their principal. Unless home equity loans or purchase mortgages pick up by a lot—which doesn’t seem in the offing—the pattern should hold. So don’t expect rapid mortgage growth any time soon. ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ Call CJ for your Real Estate needs @ 909/ 910-2481