Residential Mortgages: Who Borrows What?

The Financial Accounts of the United States shows continued improvement in the aggregate home equity position of U.S. households.

Household holdings of real estate, measured on a not seasonally adjusted basis, totaled $21.540 trillion in the second quarter of 2015, $1.366 trillion higher than its level, $20.174 trillion, in the second quarter of 2014. At the same time, home mortgage debt outstanding, $9.413 trillion in the second quarter of 2015, rose by $41.0 billion over the same period. Since the total value of household-held real estate rose faster than the aggregate amount of mortgage debt outstanding, then home equity held by households grew. Over the year, total home equity held by households grew by $1.325 trillion, 12.3%, to $12.128 trillion. Household’s home equity is now 56.3% of household real estate*.

Information received from the Financial Accounts of the United States indicates that households and nonprofit organizations are the primary borrowers of residential mortgages. Moreover, the distribution of residential mortgage borrowers has remained relative steady over the past 70 years. Residential mortgages include 1-4 family residential mortgages and multifamily residential mortgages. It excludes commercial and farm business mortgages.

Presentation1

At the end of 2014, households and non-profits were responsible for borrowing 86% of residential mortgage debt outstanding. At the same time, non-financial non-corporate businesses such as partnerships, were responsible for borrowing 13% of total residential mortgage debt outstanding. The rest, 1%, was borrowed by non-financial corporate businesses and by equity real estate investment trusts.

This ranking of the largest holders of total residential mortgage debt outstanding has remained constant over time. Households and non-profits are the largest borrowers of residential mortgage debt outstanding and non-financial non-corporate businesses are the second largest borrower. Combined, these two classes of borrowers account for the majority of residential mortgage debt outstanding. However, the share borrowed by households and non-profits has risen from 79% in 1945. The 7 percentage point gain in the share of borrowing done by households and non-profits between 1945 and 2014 was offset by the 7 percentage point decline, from 20% in 1945 to 13% in 2014, in the share of residential mortgage borrowing by non-financial non-corporate businesses.

Presentation2

The distribution of residential mortgage debt outstanding by borrower largely reflects the amount of the 1-4 family mortgage debt outstanding relative to the value of multifamily residential mortgage debt outstanding. This is because the vast majority of 1-4 family mortgages are held by households and non-profits while non-corporate non-financial businesses borrow the bulk of multifamily residential mortgages. As shown in Figure 2, the share of 1-4 family mortgage debt outstanding borrowed by households and non-profit organizations has held relatively steady over the past 70 years, the duration of the data. Between 1945 and 1968 households and non-profits were the only borrowers of 1-4 family mortgages. Since 1968, non-financial non-corporate businesses and, to a much lesser extent, non-financial corporate businesses like limited liability corporations, now account for a small portion of 1-4 family mortgage borrowing**.

While households and non-profit organizations are the largest borrowers of 1-4 family mortgages, non-financial non-corporate businesses are the primary borrowers of multifamily residential mortgages. Similar to the 1-4 family mortgage market, non-financial non-corporate businesses have been the largest borrowing class over the past 70 years. As of the end of 2014, non-financial non-corporate businesses accounted for 92% of multifamily mortgage borrowing. The rest of the borrowing was done by non-financial corporate businesses, 5%, and equity real estate investment trusts, 3%.

Presentation3

* Since the market value of real estate refers only to the houses held by households, excluding the market value of housing held by non-profits, then the household net equity metric, which subtracts 1-4 family mortgage debt outstanding for households and non-profits from the total market value of houses owned by households only, may underreport the total amount of net equity held solely by households if non-profits borrow using 1-4 family mortgages.

** According to the Federal Reserve Board’s Financial Accounts of the United States, mortgage borrowing by households and non-profits is composed of 1-4 family mortgages and commercial mortgages. The 1-4 family mortgage debt outstanding series is the same as the mortgage debt series used to calculate household net equity.



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