The Fed’s flow of funds data provide some support for the notion that financial firms and households have been deleveraging. Of course, the full story is that mortgage borrowers, on balance, stopped borrowing during the current economic expansion. They stopped doing so for all sorts of reasons. Mortgage credit has become harder to obtain, and terms have been tightened. Until the past two years, falling home prices curbed buyers’ enthusiasm. When prices rebounded, as institutional investors piled into the housing market, affordability became an issue again, especially given the ongoing credit crunch in the mortgage market.
One of the big drags on home sales has been a dearth of first-time buyers because many people who might otherwise be buying their first homes have graduated from college with onerous student loans. These are included in nonrevolving consumer credit along with auto loans. This category rose to a record $2.3 trillion during April, with student loans accounting for roughly half of this total.
Large student debt burdens disqualify many young adults from getting mortgage loans, especially if they’ve been delinquent in their payments. Many of the individual loan balances are equivalent to the amount of down payment for the houses they might have bought but for their student debt burdens. That helps to explain the drop in the homeownership rate of adults under 35 years old from a record high of 43.6% during Q2-2004 to 36.2% during Q1-2014.
Today's Morning Briefing: Deleveraging Reality & Myth. (1) The long goodbye. (2) A 50% expansion. (3) The balance-sheet-recession theory. (4) Warsh and Druckenmiller weigh in. (5) Sympathy for the ideology, not its logic. (6) The deleveraging hypothesis also has some holes. (7) Financial sector has deleveraged and de-securitized. (8) Have households really deleveraged? It’s a complicated story. (9) Student debt depressing students and housing. (10) No shortage of nonfinancial business debt. (11) Leviathan lives on debt. (More for subscribers.)
One of the big drags on home sales has been a dearth of first-time buyers because many people who might otherwise be buying their first homes have graduated from college with onerous student loans. These are included in nonrevolving consumer credit along with auto loans. This category rose to a record $2.3 trillion during April, with student loans accounting for roughly half of this total.
Large student debt burdens disqualify many young adults from getting mortgage loans, especially if they’ve been delinquent in their payments. Many of the individual loan balances are equivalent to the amount of down payment for the houses they might have bought but for their student debt burdens. That helps to explain the drop in the homeownership rate of adults under 35 years old from a record high of 43.6% during Q2-2004 to 36.2% during Q1-2014.
Today's Morning Briefing: Deleveraging Reality & Myth. (1) The long goodbye. (2) A 50% expansion. (3) The balance-sheet-recession theory. (4) Warsh and Druckenmiller weigh in. (5) Sympathy for the ideology, not its logic. (6) The deleveraging hypothesis also has some holes. (7) Financial sector has deleveraged and de-securitized. (8) Have households really deleveraged? It’s a complicated story. (9) Student debt depressing students and housing. (10) No shortage of nonfinancial business debt. (11) Leviathan lives on debt. (More for subscribers.)
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