Consumer debt decreased by 0.5% nationwide in the second quarter (2Q) of 2012. Much of this reduction is due to decreased mortgage balances. This overall decrease is achieved through the continued high numbers of short sales and foreclosure sales.
Non-mortgage debt actually increased by 0.4% in 2Q 2012. The increase came from consumers taking out more auto loans and student loan debt, a good sign a recovery is underway.
California had the highest average debt balance per person of any state,$70,000 per capita. In contrast, the national average was $47,000 per capita. Most of this difference is in mortgage debt due to California’s high home prices achieved and lost during the Millennium Boom.
first tuesday insight
29% of households in California (2 million homes) are over-encumbered by underwater mortgage debt. Therefore, taking on even more debt is simply unthinkable (if not impossible) for these overburdened homeowners. Not good for the recovery of the California economy.
Californians are deleveraging mortgage debt more quickly than the rest of the nation. California managed to shed 6.5% of its mortgage debt this year. The rest of the nation managed only a 4% decrease.
But this deleveraging is not the sign of a healthy amortization or long-term shift in prices. Homeowners are either losing or walking away from their homes. The excess debt is lost with the home. As a result, the homeownership rate is in serious decline.
Related article:
California’s homeownership rate is the lowest in the nation – currently at 54.7%. As it continues to drop, settling around 51% by 2017, renting will become more common. Agents can shift their business to include rentals to ensure success in the coming years.
Re: Quarterly Report on Household Debt and Credit from the Federal Reserve Bank of New York
Moral compass? There is no such thing in the law, the Courts enforce laws and truth be said, when a consumer defaults on their loan they have complied with the terms of the contract as the contract provides a remedy for their breach, foreclosure. As it is for the lender, this is just business. I am not sure of the exact statistic but more than 70% of the homeowners are performing on their loans, underwater or not. However, this push for a moral compass has in effect killed the real estate market. What is the complaint today??? Not enough inventory. That is because many of those underwater homeowners (which I affectionately refer to as the Zombie Market) are locked in and cannot sell or buy. IF THEY DID WALK WAY the real estate industry would have more inventory to sell. The industry does not get it both ways… telling homeowners to stay in their underwater mortgage for “moral” reasons and then complain they have no inventory to sell. This is business… and most that stay in their underwater home are poor business persons.
Promoting morality in the context of contract law is a pointless exercise as morality is a personal and individual concept. There are no two people that agree totally on what is moral and what isn’t. Further, if you are going to apply morality to the homeowner, you must equally apply it to the lender. We all know that won’t happen so just stay with the written 4 corners of the contract… the consumer is choosing to default and exercise the remedies of the contract. Doing so will create plenty of inventory for the real estate market… a normalizing of sorts.
I totally agree with Michael Grant. Regardless of the predatory practices of some lenders facilitated by the GSEs and the resulting derivatives, home “owners” seem to have lost their moral compass as they effectively default on their commitments, apparently with no thought to the consequences of their actions.
The sad truth about all too many people walking away from thier homes and their mortgage obligations is that they REALLY could afford their mortgage payments and they could have kept their homes. This is shown by their now taking on more debt to purchase cars, boats, and other toys. These same buyers have learned that after walking away from their homes they will be able to purchase another home is just a few short years. In most cases … even a nicer, larger home than the one they walked away from. Just another example of the “entitlement mentality” of too many people in this country.