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mortgage debt

For those who are concerned about another bubble, here is evidence that indicates we’re in a position to handle it better.  Leverage is down, which should mean less government intervention next time (?):

http://www.businessinsider.com/the-housing-market-is-less-leveraged-than-during-the-bubble-2015-6#ixzz3d96G4k29

An excerpt:

Bank of America Merrill Lynch economist Michelle Meyer offered some color on this in a recent note to clients.

She discussed the ratio of the total level of mortgage debt to the overall market value of real estate. This adjusts the amount of leverage and debt in the housing market by the total size of the market. Meyer observes that there’s been a huge drop in this measure since the Great Recession:

“[The ratio] shows that 44% of real estate wealth is made up of mortgage debt. This is nearly back to the pre-bubble crisis and compares to a peak of 63% in 2Q09 (Chart 7). A lower aggregate loan-to-value ratio suggests the real estate market should be more susceptible to shocks in the future.”

Meyer then considers some of the causes of the drop in mortgage debt. Debt dropped as a result of the unwinding of the housing bubble:

“Much of the decline in mortgage debt owes to foreclosures which resulted in the liquidation of delinquent debt. However, it also is a function of lower loan sizes given larger down payments and the drop in home prices.”

Liquidation of delinquent debt sounds bad, and it’s certainly unpleasant for people losing their homes.  Nevertheless, it’s reflective of a system clearing out an ugly past.

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