Downwards trend in mortgage debt over past year signals home equity boost

Homeowners may be getting themselves out of mortgage debt. The Household Economic Activity Tracker (HEAT) shows a downward trend in the total value of mortgage debt from August 2011 to July 2012.

It is estimated by the Wall Street Journal that around 11 million Americans owe more than their homes are worth. But HEAT data shows signs that home equity could be on the rise, as the amount homeowners owe on their mortgage decreases. A WSJ report on July 14 indicated there are positive movements in the housing market, as more new homes had been built in June 2012 than in any month in the past four years.

In the March 2011 to July 2012 period, total average mortgage debt by month reached a peak in August 2011 at an average of US$112,133 per household, declining to US$87,743 in July 2012. There was a moderate hike in average mortgage debt in January 2012 (US$106,887) and February 2012 (US$105,135). This may coincide with the post-Christmas period, where consumers tend to have less disposable income to use on mortgage repayments.

Lower interest rates in the August 2011 to July 2012 period may have encouraged homeowners to take advantage of cheaper borrowing, allowing them to refinance their loans and cut mortgage debt. This trend looks set to continue, as the Federal Reserve signaled earlier this month that it may take action to stimulate the US economy by keeping interest rates at “exceptionally low levels” until 2014 – which could keep borrowing costs low. Federal Reserve data from June 2012 also recorded a 7.3% jump in home equity in Q1 2012, the highest level since 2008, according to an analysis by Bloomberg.