Saturday, December 1, 2012

About Those Over Leveraged Households

If It Can't Go On Forever...
Let's take a look at those over leveraged households.  I previously posted about the massive loss in home owner's equity - all $7.27 trillion of it from 2005 to 2008.  Mortgage debt is a good way to understand households because buying a house is the biggest purchase of nearly every households.
The first graph examines the percent share of household real estate assets - mortgage debt and owner's equity - while the second graph examines the household real estate debt:equity ratio.
Household real estate assets by percent share: equity (blue) and mortgage debt (red).  Plotted along with mortgage debt:personal income (green).
Debt:Equity of household real estate with mortgage debt:personal income.
I reckon households were over leveraged before the debt:equity ratio took off.  After the early-2000s recession households took on an unusual amount of mortgage debt relative to their personal income.  That is not good because that indicates house prices were climbing higher than the rate of income growth (very inflated growth).  The future income earnings could not pay for the massive mortgage debt.
The same thing, I believe, can be said of the total credit market where the household and financial share have a very sharp drop-off.
Total credit market debt owed breakdown.  Total credit market debt owed:gross domestic product ratio (green) included.
Total credit market debt owed by percent share.

Did we hit peak financial credit market debt owed?  Can it continue to grow larger as a share of the total?  It looks like the share of household debt has been offset by federal government debt.  More on that latter.


  1. Oh I like those graphs, especially the last one. Interesting that household debt has been roughly stable since the mid-1960s as a share of total debt.

    See that financial zone up top? That's all cost, all unnecessary cost. Finance should have stayed as it was in 1951 and ended up as a little strip across the top, like Foreign debt. That would have freed up income for wages and profits, the productive side of the economy.

    What app did you use to make those graphs?

    1. To the best of my ability I'd attribute the household debt being stable to the creation and expansion of the GSEs.

      As far as graph making, I downloaded everything to an excel spread sheet and used a 100% stack column chart.