Thursday, September 24, 2009

Fed: Homeowner Mortgage Obligations Still Historically High

by Calculated Risk on 9/24/2009 03:35:00 PM

The Federal Reserve released the Household Debt Service and Financial Obligations Ratios for Q2 today.

NOTE from Fed: "The limitations of current sources of data make the calculation of the ratio especially difficult. The ideal data set for such a calculation would have the required payments on every loan held by every household in the United States. Such a data set is not available, and thus the calculated series is only a rough approximation of the current debt service ratio faced by households. Nonetheless, this rough approximation may be useful if, by using the same method and data series over time, it generates a time series that captures the important changes in household debt service payments."

Because of these limitations, the Financial Obligations Ratio (FOR) should be used to look at changes over time, not the absolute value of the ratio.

Financial Obligations Ratio Click on graph for larger image in new window.

This graph shows the homeowner financial obligations for consumer and mortgage debt as a percent of disposable personal income (DPI) since 1980.

"The homeowner mortgage FOR includes payments on mortgage debt, homeowners' insurance, and property taxes, while the homeowner consumer FOR includes payments on consumer debt and automobile leases."

Consumer financial obligations are still a little high historically, but mortgage obligations are very high (especially considering the level of interest rates). Just like after the housing bubble of the late '80s/ early '90s, it will probably take some time for the mortgage FOR to decline to more normal levels.