(Oh, and I moved to a new company – see below)
After years of American households taking on more and more debt, the Great Recession kind of kicked that trend in the gut. One way or another, Americans started shedding debt. They paid debt down, let their homes go into foreclosure, went bankrupt or simply stopped paying bills until they were charged off.
Now American households have the lowest debt obligations in a generation as measured by ongoing monthly payments compared to average income.
Known as the household Debt Service Ratio, the ratio of total quarterly required debt obligation payments divided by total quarterly disposable income has been declining steadily since 2008. It can be further broken down into mortgage-related debt and consumer debt. Both represent about 5% of personal disposable income (each) for a total of about 10% of total personal disposable income committed each month to debt obligations.
(Remember this is a national average. Yours, and mine, may be MUCH higher…)
This represents a 30% decline from 2008 when household Debt Service Ratio stood at 13%.
(I removed the headings and axis titles because they were not readable when compressed, but the peak is 2008)
An interesting trend is that consumer debt ratio started declining in 2002, while mortgage debt was continuing to rise. I attribute that to families converting revolving debt and installment loans into mortgage debt, much of it through the use of the easy-money creative financing that became so prominent at that time.
I should note that the data for this analysis is not readily available, so some of it is extrapolated, but it is extrapolated from reliable sources. It is most useful for spotting trends more than anything else, and the trends are very positive when we understand that consumer confidence (and therefore consumer spending) tend to increase when folks have more disposable income, which they do today.
This chart and most of the information in this blog was pulled from The Calculated Risk Blog, an outstanding economic blog with a terrific track record.
About the new company: with regrets I have decided to leave Signet Mortgage, one of the best small mortgage brokers around. I found that in order to get loans processed more efficiently I needed to work with a larger company.
I am now working with C2 Financial Corp., with much of the same team that I worked with at Windsor Capital back in the day. We have hundreds of loan originators, dozens of lenders, and are a preferred broker with virtually every lender we work with. (Read: more options, lower pricing, better service.) There is literally very little I cannot do, so if you are thinking about real estate financing, please call.
Also, if someone you know might be in the market to buy a home, refinance, or get a reverse mortgage, you would be doing me a great favor to pass a link to this blog on to them. Thank you!
My name is Casey Fleming. I advise families on mortgages throughout California, and am based in Silicon Valley.
(408) 348-3442 / firstname.lastname@example.org
NMLS 344375 / BRE 00889527