FRBNY — Mortgage Borrowing among Most Creditworthy Abates

Today’s release of the New York Fed’s Quarterly Report on Household Debt and Credit for the first quarter of 2015 reports a flattening in household debt balances. The slow growth in debt balances has left many wondering about the dynamics behind this change—who is borrowing, and who is paying down their balances? Thus, we use the same data set, the New York Fed Consumer Credit Panel (which is itself based on Equifax credit data) to identify the changes in balances by credit score, updating a post from last year with more recent data and also providing an in-depth look at the change in mortgage balances.

The charts below show contributions to changes in debt balances by borrowers’ credit scores (Equifax Riskscores), first looking at the data we presented in our earlier post (2012:Q4 to 2013:Q4) and then the most recent data, from 2014:Q1 to 2015:Q1. Since the figures are expressed as growth contributions, summing the numbers for a given loan type produces the overall percentage growth for that type over the relevant four-quarter period. The changes in contributions since 2013 are relatively modest, but there have been some important developments. The first notable difference is that credit card balances rose more democratically this time—with borrowers with credit scores over 620 all contributing to the increased balance. And there’s one difference that stands out even more, which is that the most creditworthy borrowers held back housing debt growth even more significantly during the most recent four-quarter period....

The rest of the report doesn't look good for a housing recovery.

FRBNY — Liberty Street Economics
Just Released: Mortgage Borrowing among Most Creditworthy Abates

Andrew Haughwout, Donghoon Lee, Joelle Scally, and Wilbert van der Klaauw

See also

Driving home prices into the stratosphere has been top priority for the Fed. It’s called the “healing of the housing market.” The higher the home prices, the more they’re “healed.” 

It was designed to bail out the banks, their stockholders and bondholders, such as Warren Buffett who is the largest investor in the nation’s largest mortgage lender, Well Fargo, and presides over a vast finance and insurance empire. It was part and parcel of the Fed’s successful plan to inflate all asset prices via waves of QE and interest rate repression, come hell or high water.

Inflating the prices of stocks and bonds is one thing. People don’t have to live in them. Not so with homes. People have to live somewhere. By inflating home prices, the Fed has inflated the costs of everyday life for all Americans. No big deal for the wealthy. But woe to those on a median income....

The new American business model new normal.

People who pay a large part of their household income for rent or a mortgage, or who save assiduously for a huge down payment, don’t have much cash left to contribute to the overall economy. Most of their income simply gets confiscated by inflated home prices, or the resulting high rents and associated expenses. It’s channeled to landlords, PE firms, and REITs that own the homes; banks and investment funds that own the mortgages or the mortgage-backed securities; and a million other entities. Most of it becomes part of the grease that keeps Wall Street from squealing. But nothing happens with that money to move the real economy forward.

Wolf Street
How Soaring Housing Costs Impoverish a Whole Generation and Maul the Real Economy
Wolf Richter