An End to Household Deleveraging?

December 12, 2013 | Mike Spychalski, CAIA, Vice President

This week’s chart of the week compares the total household mortgage liability (i.e., outstanding mortgage balances) to the total owners’ equity in household real estate (i.e., home equity) for all households in the United States. As the chart indicates, in 3Q 2013 the total owners’ equity in household real estate exceeded the total household mortgage liability for the first time since the 2007/2008 financial crisis. This recent turnaround was driven primarily by the rebound in housing prices over the past few years (causing an increase in owners’ equity) and the large number of foreclosures on underwater homeowners over the past several years (causing both a decrease in outstanding mortgage balances and an increase in owners’ equity).

This development is significant because it may signal that household deleveraging, which has been a drag on economic activity for the past several years, is finally starting to come to an end. While still too early to determine if this data point is part of a larger economic trend, further readings of a positive gap between equity and liability should translate to stronger economic growth in the coming years.

Mike Spychalski, CAIA
Vice President

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The opinions expressed herein are those of Marquette Associates, Inc. (“Marquette”), and are subject to change without notice. This material is not financial advice or an offer to purchase or sell any product. Marquette reserves the right to modify its current investment strategies and techniques based on changing market dynamics or client needs.

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