Meet the Author

Yuliya Demyanyk |

Senior Research Economist

Yuliya Demyanyk

Yuliya Demyanyk is a senior research economist in the Research Department of the Federal Reserve Bank of Cleveland. Her research focuses on analysis of the subprime mortgage market, on the roles that financial intermediation and banking regulation play in the U.S. economy, and on analysis of financial integration in the United States as well as in the European Union.

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Meet the Author

Amy Higgins |

Research Analyst

Amy Higgins

Amy Higgins is a research analyst in the Research Department of the Federal Reserve Bank of Cleveland. Her primary interests include microeconomics, regional economics, and econometrics.

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Economic Trends

Consumer Debt and the Housing Market

Yuliya Demyanyk and Amy Higgins

Household debt has been shrinking since 2009, and the latest data show the trend continues. Total consumer debt outstanding fell from $11.23 trillion dollars in the first quarter of 2013 to $11.15 trillion in the second quarter (Equifax, FRB NY CCP). In contrast, however, two components of overall debt rose over that period: Auto loans went up from $749 billion to $800 billion, and student loans went up from $986 billion to $994 billion.

According to the Bureau of Economic Analysis, sales of light motor vehicles plummeted to their lowest level since the 1980s during the Great Recession. Newly originated auto loan balances also declined during the recession. Auto loans reached their lowest point in 2010:Q2, when they accounted for $702 billion out of the $11.9 trillion of total debt (Equifax, FRB NY CCP). Light vehicle sales and newly originated auto loan balances have made a U-shaped turnaround since the onset of the crisis, possibly due to historically low interest rates.

Meanwhile, credit card debt and other debt (non-mortgage, non-auto, and non-student loan) have been declining since the beginning of the financial crisis, reaching their lowest levels in 2013:Q1 ($660 billion for credit cards) and in 2010:Q2 ($296 billion for other debt). Student loans have followed a steady upward trend, even during the recession, and continue to grow.

Aggregate mortgage debt also continues to decline, despite growing numbers of existing home sales.

According to the National Association of Realtors (NAR), the number of existing single-family home sales increased from 4.34 million in 2013:Q1 to 4.47 million in 2013:Q2. Home-purchase applications have remained relatively stable, but refinancing applications are on a downward trend, most likely because of rising mortgage interest rates. The 30-year conventional-mortgage interest rate increased from 4.37 percent in July 2013 to 4.46 percent in August 2013. Interest rates are higher than their record low in December 2012 but still low compared to historical values.

Even though mortgage interest rates and home values are rising, homes are currently more affordable than they were during the 1990s and early 2000s, which could encourage further growth in home sales. The NAR’s Housing Affordability Index was 175.8 in 2013:Q2. An index value greater than 100 means that a family earning the median income has more than enough income to qualify for a mortgage loan on a median-priced home, assuming a 20 percent down payment.

Mortgage industry professionals expect the number of people buying homes to go up in the near future. According to Inside Mortgage Trends, the Mortgage Bankers Association projects that home sales will grow from $503 billion in 2012 to $615 billion in 2013, about $700 billion in 2014, and $990 billion in 2015. This expectation, combined with rising home values, is likely to encourage the adoption of a technological innovation: the mobile digital loan-processing application. Greater use of this tool is expected to simplify the mortgage borrowing process for individuals and lenders, which could facilitate doing business in an expanding market and help it grow further. If this trend materializes, the homeownership rate can be expected to rise in the near future.