Housing Equity Continues to Expand

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 $21.826 trillion in the third quarter of 2015, $1.365 trillion higher than its level, $20.461 trillion, in the third quarter of 2014. At the same time, home mortgage debt outstanding, $9.460 trillion in the third quarter of 2015, rose by $78.0 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 $1.286 trillion, 11.6%, to $12.366 trillion. Household’s home equity is now 56.7% of household real estate.

As an accounting item, mortgage debt is an asset for some holders and a liability for others. An earlier post documented how households and non-profits as well as non-financial non-corporate businesses such as partnerships are the principal borrowers of residential mortgage debt. Households and non-profits account for the majority of 1-4 family residential mortgage debt outstanding while non-financial non-corporate businesses account for most of the multifamily residential mortgage debt borrowed.

While mortgage debt is a liability for these groups, it is an asset for those holders of mortgages that ultimately receive the mortgage payments. For example, when a depository institution lends to a household for the purpose of buying a home, the associated interest paid by the household is also a stream of revenue for the lending institution or, in the case of Fannie Mae, it is a revenue source for the ultimate holder of the mortgage. Although the principal borrowers of residential mortgage debt, 1-4 family and multifamily alike, have remained largely constant and highly concentrated over time, the asset holders of residential mortgage debt have changed over time. In addition, the distribution of asset holders is less concentrated, more so for multifamily residential mortgages than for 1-4 family residential mortgages, with more actors.

Presentation1

In 1945, depository institutions held the majority of 1-4 family residential mortgage debt outstanding while the category “All Else” held the remaining 47%. “All Else” includes households and non-profits, life insurance companies, other financial institutions such as credit unions and finance companies, private pension funds, state and local governments, foreign banks and real estate investment trusts. At the expense of the category “All Else”, the share of 1-4 family residential mortgage debt outstanding held by depository institutions rose to 74% by 1977.

In the years following 1977, the share of 1-4 family residential mortgage debt outstanding shrank markedly. However, instead of a reemergence in the category “All Else”, the declining share of 1-4 family residential mortgage debt outstanding held by depository institutions was offset by a rapid expansion in the proportion held in mortgage pools. These include both agency- and GSE-backed mortgage pools as well as private issuers of asset-backed securities. Between 1977 and 2009, the share of 1-4 family residential mortgage debt outstanding held in mortgage pools soared to 63%.

In 2010, its share held in mortgage pools shrank as these securities were put onto the balance sheet of the GSEs*.Between 2009 and 2010, the share held in mortgage pools fell by 40 percentage points to 23% while the GSE portion rose by 41 percentage points to 45%. At 46%, the GSEs accounted for a plurality of 1-4 family residential mortgage debt outstanding by 2014. However, its share did not eclipse 50%. At 24%, depository institutions accounted for just above half of the GSE share.

Presentation2

In 1945, the category “All Else” held the majority of multifamily residential mortgages while depository institutions held the remaining 43%. The “All Else” holdings were largely in households and non-profits and life insurance companies. The share of multifamily residential mortgages held by “All Else” rose to 66% by 1960, further shrinking the portion of multifamily residential mortgages held by depository institutions. However, beginning in 1961, the share of multifamily residential mortgages held by depository institutions began to expand, largely at the expense of “All Else”. By 1985, depository institutions accounted for more than half of all multifamily residential mortgage debt outstanding.

Presentation3

In the years following 1985, the share of multifamily residential mortgage debt outstanding held by both depository institutions and by “All Else” declined as, first mortgage pools, then the GSEs’ footprint widened. Between 2009 and 2010 a portion of the mortgage pools were moved to the balance sheets of the GSEs as the share of multifamily residential mortgage debt outstanding held by mortgage pools fell from 25% in 2009 to 20% in 2010. Conversely, the proportion held by GSEs rose from 25% in 2009 to 30% in 2010.

As of 2014, depository institutions held the majority of multifamily residential debt outstanding though their share is considerably below its 1985 level. Mortgage pools account for 25% of multifamily mortgage debt outstanding as the spike in agency- and GSE-backed mortgage pools has more than offset the decline in mortgage pools held by private issuers of asset-backed securities, as shown in Figure 4. Combined, all other institutions account for the smallest share of multifamily mortgage debt outstanding.

Presentation4

* According to the 8th pdf page of the June 2010 release of the Flow of Funds; “As a result of two new accounting rules, FAS 166 and 167, the assets and liabilities of some special purpose entities (SPEs) have been moved onto the balance sheets of the U.S.-chartered commercial bank sector (table L.110), the government-sponsored enterprise sector (table L.124), and the finance company sector (table L.127). The consolidated assets and liabilities were removed from the agency- and GSE-backed mortgage pool sector (L.125) and the issuers of asset-backed securities (ABS) sector (table L.126). Almost all of the consolidations resulting from the new accounting rules occurred in the first quarter of 2010.” A brief discussion of FAS 166 and 167 related to pools securitized by consumer credit was made here.



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