Why Today’s Mortgage Debt Isn’t a Sign of a Housing Market Crash

<article class="post-1281266 post type-post status-publish format-standard has-post-thumbnail hentry" id="post-1281266"><span class="entry-date">November 25, 2024</span><div class="entry-header center-block text-center"><h1 class="entry-title">Why Today’s Mortgage Debt Isn’t a Sign of a Housing Market Crash</h1><div class="shareBlock"><div class="shareTitle">Share</div><div class="shareIcons"><a aria-label="Twitter Share Link" class="twitter solid display-inline-block" data-tracking="Post,Social Post Link Clicked,Twitter" href="http://twitter.com/share?text=Why+Today%E2%80%99s+Mortgage+Debt+Isn%E2%80%99t+a+Sign+of+a+Housing+Market+Crash&amp;url=https%3A%2F%2Fgilliggroup.com%2Fblog%2Fwhy-todays-mortgage-debt-isnt-a-sign-of-a-housing-market-crash%2F" target="_blank"><span class="force-hidden">Twitter</span></a>
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</div></div><div class="post-tax post-category"><span></span><a href="../category/realtor-blog/index.html" rel="tag">Realtor Blog</a></div><div class="post-tax post-post_tag"></div></div><div class="entry-content"><div><img alt="Why Today’s Mortgage Debt Isn’t a Sign of a Housing Market Crash Simplifying The Market" decoding="async" loading="lazy" src="https://files.keepingcurrentmatters.com/KeepingCurrentMatters/content/images/20241119/20241125-Why-Today-s-Mortgage-Debt-Isn-t-a-Sign-of-a-Housing-Market-Crash-original.png" style="display: block; margin-bottom: 5px; clear: both; max-width: 100%;" width=""/>
<p>One major reason why we’re not heading toward a <a href="https://www.simplifyingthemarket.com/2024/10/24/why-todays-foreclosure-numbers-wont-trigger-a-crash/?a=712984-fa409495d5d70154d03a25e81e9540e2" rel="noopener noreferrer" target="_blank">foreclosure crisis</a> is the high level of <a href="https://www.simplifyingthemarket.com/2024/10/18/why-buying-now-is-worth-it-infographic/?a=712984-fa409495d5d70154d03a25e81e9540e2" rel="noopener noreferrer" target="_blank">equity</a> homeowners have today. Unlike in the last housing bubble, where many homeowners owed more than their homes were worth, today’s homeowners have far more equity than debt.</p>
<p>That’s a big part of the reason why even though mortgage debt is at an all-time high, this isn’t 2008 all over again. As Bill McBride, Housing Analyst for<em> Calculated Risk,</em> <a href="https://nhc.org/update-the-housing-bubble-and-mortgage-debt-as-a-percent-of-gdp/" rel="noopener noreferrer" target="_blank">explains</a>:</p>
<blockquote><p><em>“With the recent house price increases, some people are worried about a new housing bubble – </em><strong><em>but mortgage debt isn’t a concern</em></strong><em> . . .”</em></p></blockquote>
<p>Today’s <a href="https://www.simplifyingthemarket.com/2024/11/12/whats-motivating-homeowners-to-move-right-now/?a=712984-fa409495d5d70154d03a25e81e9540e2" rel="noopener noreferrer" target="_blank">homeowners</a> are in a much <a href="https://www.simplifyingthemarket.com/2024/11/07/renting-vs-buying-the-net-worth-gap-you-need-to-see/?a=712984-fa409495d5d70154d03a25e81e9540e2" rel="noopener noreferrer" target="_blank">stronger position</a> than ever before. So, let’s break it down and see why today’s mortgage debt isn’t anything to fear.</p>
<h4><strong>More Equity, Less Risk of Foreclosures</strong></h4>
<p><a href="https://fred.stlouisfed.org/tags/series?t=real+estate" rel="noopener noreferrer" target="_blank">According</a> to the <em>St. Louis Fed</em>, total homeowner equity is nearly triple the total mortgage debt today (<em>see graph below</em>):</p>
<p><a href="https://files.keepingcurrentmatters.com/KeepingCurrentMatters/content/images/20241119/20241125-Homeowners-Have-Far-More-Equity-Than-Mortgage-Debt-original.png" rel="noopener noreferrer" target="_blank"><img alt="a graph of a graph showing the rise and fall of mortgages" decoding="async" src="https://files.keepingcurrentmatters.com/KeepingCurrentMatters/content/images/20241119/20241125-Homeowners-Have-Far-More-Equity-Than-Mortgage-Debt-original.png"/></a>High equity makes it less likely for homeowners to face foreclosure because they have more options. If someone struggles to make their mortgage payments, they could potentially <a href="https://www.simplifyingthemarket.com/2024/10/28/why-your-house-will-shine-in-todays-market/?a=712984-fa409495d5d70154d03a25e81e9540e2" rel="noopener noreferrer" target="_blank">sell their house</a> and still come out ahead thanks to their built-up equity.</p>
<p>Even if home values <a href="https://www.simplifyingthemarket.com/2024/11/05/expect-the-unexpected-anticipating-volatility-in-todays-housing-market/?a=712984-fa409495d5d70154d03a25e81e9540e2" rel="noopener noreferrer" target="_blank">were to dip</a>, most homeowners would still have a comfortable cushion of equity. That’s a big contrast to the 2008 crisis, where many homeowners were underwater on their mortgages and had few options to avoid foreclosure.</p>
<h4><strong>Delinquency Rates Are Still Near Historic Lows</strong></h4>
<p>Another reassuring sign is that, <a href="https://www.newyorkfed.org/medialibrary/Interactives/householdcredit/data/pdf/HHDC_2024Q3.pdf?sc_lang=en" rel="noopener noreferrer" target="_blank">according</a> to the <em>NY Fed,</em> the number of mortgage payments that are more than 90 days late is still near historic lows (<em>see graph below</em>):</p>
<p><a href="https://files.keepingcurrentmatters.com/KeepingCurrentMatters/content/images/20241119/20241125-Serious-Mortgage-Delinquincy-Rates-Remain-Low-original.png" rel="noopener noreferrer" target="_blank"><img alt="a graph showing a line going down" decoding="async" src="https://files.keepingcurrentmatters.com/KeepingCurrentMatters/content/images/20241119/20241125-Serious-Mortgage-Delinquincy-Rates-Remain-Low-original.png"/></a>This is partly due to a variety of programs designed to help homeowners through temporary hardships. As Marina Walsh, VP of Industry Analysis at the <em>Mortgage Bankers Association</em> (MBA), <a href="https://www.mba.org/news-and-research/newsroom/news/2024/08/15/mortgage-delinquencies-increase-in-the-second-quarter-of-2024" rel="noopener noreferrer" target="_blank">says</a>:</p>
<blockquote><p><em>“. . . servicers are helping at-risk homeowners avoid foreclosures through loan workout options that can mitigate temporary distress.”</em></p></blockquote>
<p>So, even if someone <a href="https://www.simplifyingthemarket.com/2024/10/30/avoid-these-top-homebuyer-mistakes-in-todays-market/?a=712984-fa409495d5d70154d03a25e81e9540e2" rel="noopener noreferrer" target="_blank">falls behind</a> on their payments, there are support systems in place to help them avoid foreclosure.</p>
<h4><strong>Low Unemployment Helps Keep the Market Stable</strong></h4>
<p>One other important factor is today’s low unemployment rate. More people have stable jobs, which means they’re better able to afford their mortgage payments. As Archana Pradhan, Principal Economist at <em>CoreLogic</em>, <a href="https://www.corelogic.com/intelligence/serious-mortgage-delinquency-rates-lowest-since-1999/" rel="noopener noreferrer" target="_blank">explains</a>:</p>
<blockquote><p><em>“Low unemployment numbers have helped reduce the overall delinquency rate . . .”</em></p></blockquote>
<p>During the last housing crisis, unemployment was much higher, which led to a wave of foreclosures. Today’s <a href="https://www.bls.gov/news.release/empsit.nr0.htm" rel="noopener noreferrer" target="_blank">unemployment rate</a> is very different (<em>see graph below</em>):</p>
<p><a href="https://files.keepingcurrentmatters.com/KeepingCurrentMatters/content/images/20241119/20241125-Unemployment-Is-Still-Very-Low-original.png" rel="noopener noreferrer" target="_blank"><img alt="a graph of employment and financial crisis" decoding="async" src="https://files.keepingcurrentmatters.com/KeepingCurrentMatters/content/images/20241119/20241125-Unemployment-Is-Still-Very-Low-original.png"/></a>That stability in how many people are employed is one of the reasons the market doesn’t have the same risks as it did the last time.</p>
<p>There’s no need to worry about a wave of distressed sales like the one we saw in 2008. Most homeowners today are employed and have low-interest mortgages they can afford, so they’re able to make their payments. As McBride <a href="https://nhc.org/update-the-housing-bubble-and-mortgage-debt-as-a-percent-of-gdp/" rel="noopener noreferrer" target="_blank">states</a>:</p>
<blockquote><p><em>“The bottom line is there will not be a huge wave of distressed sales as happened following the housing bubble.” </em></p></blockquote>
<h3>Bottom Line</h3>
<p>While mortgage debt is high, rest assured the market isn’t on the brink of another crash. Instead, most <a href="https://www.simplifyingthemarket.com/2024/10/22/planning-to-sell-your-house-in-2025-start-prepping-now/?a=712984-fa409495d5d70154d03a25e81e9540e2" rel="noopener noreferrer" target="_blank">homeowners</a> are in a strong position. If you have <a href="https://www.simplifyingthemarket.com/2024/10/31/how-real-estate-agents-take-the-fear-out-of-moving/?a=712984-fa409495d5d70154d03a25e81e9540e2" rel="noopener noreferrer" target="_blank">questions</a> or concerns, connect with a local <a href="https://www.simplifyingthemarket.com/2024/11/08/why-you-need-an-agent-to-set-the-right-asking-price-infographic/?a=712984-fa409495d5d70154d03a25e81e9540e2" rel="noopener noreferrer" target="_blank">real estate agent</a>.</p>
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