Real Estate Values Near Record High, Mortgage Debt Near 20 Year Low...
...And trending down, at least in comparison to GDP
Bill McBride’s latest piece predominantly discusses mortgage equity withdrawals in Q3 (which are surprisingly strong), but has a fascinating chart comparing household real estate value as a percent of US GDP and mortgage debt as a percent of GDP.
As you can see, they’re heading in the exact opposite direction.
Real estate value as a percent of GDP is just below what it was at the peak before the 2008 Financial Crisis (about 162 percent vs 175 percent). On the other hand, in 2008, mortgage debt had reached an all time high of just under 80 percent. Whereas today, mortgage debt makes up less than 50 percent of GDP, the lowest it has been since 2002. And it’s trending downward.
The real estate value part is pretty easy to explain given how real estate prices skyrocketed so much over the past few years. But mortgage debt (in comparison to GDP) plummeting is probably not what most people thought was happening.
Part of this is just because US GDP has been on a consistently upward march since the end of the Great Recession (other than V-shaped Covid recession of Q1-Q2 2020 and the “technical recession” of Q1-Q2 2022):
There are other reasons for this trend though. As I pointed out in a article for BiggerPockets a while back, 30 percent of home purchases in 2021 were with cash. This is the highest rate since 2014 and substantially above the average over the last two decades.
In addition, Americans are moving substantially less often than they had in the past. As The Hill notes,
“New data from the U.S. Census Bureau shows just 8.4 percent of Americans live in a different house than they lived in a year ago. That is the lowest rate of movement that the bureau has recorded at any time since 1948.”
The longer people stay at their current residence without selling, the more principal they pay off on their loan.
And, of course, the interest-only or negatively amortized loans from 2000 to 2007 have all but disappeared. Virtually every American who has a mortgage is paying down principal each month.
Overall, this is good news for the housing market as low levels of mortgage debt compared to home values should help insulate Americans from another mortgage crisis. Instead, insofar as housing is a bubble, it’s much more likely to deflate than crash.