According to the Federal Reserve Board’s first quarter of 2016 release of its Financial Accounts of the United States report, household holdings of real estate, measured on a not seasonally adjusted basis, totaled $22.524 trillion in the first quarter of 2016, $1.140 trillion higher than its level in the first quarter of 2015, $21.113 trillion. At the same time, home mortgage debt outstanding, $9.511 trillion in the first quarter of 2016, rose by $136.4 billion over the same four-quarter 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 $1.275 trillion, 10.9%, to $13.014 trillion. Household’s home equity is now 57.8% of household real estate.
In addition to an increase in home mortgage debt held by households, the release also reported that multifamily residential debt outstanding also continues to grow. The total outstanding amount of multifamily residential debt outstanding rose by $103.6 billion, 9.5%, over the past four quarters.
As shown in Figure 1 above, the recent increase in mortgage debt outstanding partly reflects growth in multifamily mortgage originations. Between 2012 and 2014 the total amount of debt outstanding expanded by 11.8% to $993 billion dollars. Over this same period, the dollar value of multifamily originations increased by 22.3% to $112 billion.
Historically, the total amount of mortgage debt outstanding has tracked the amount of mortgage originations. Between 1995 and 2008, the total amount of mortgage debt outstanding rose from $273 billion in 1995 to $852 billion in 2008, an increase of 211%. Meanwhile, the dollar value of mortgage originations rose by 321%, from $13 billion in 1995 to $54 billion in 2008.
However, there was a disconnect between the trend in mortgage debt outstanding and that of mortgage originations over the period inclusive of the last recession. Between 2007 and 2009, the amount of mortgage originations fell from $74 billion to $34 billion before recovering to $65 billion by 2011. Instead of the decline experienced by 1-4 family mortgage debt outstanding multifamily mortgage debt outstanding was largely flat, rising between 2007 and 2008 but remaining nearly constant between 2008 and 2011.
The disconnect partly reflects the role played by mortgage defaults*. A previous post illustrated how the default rate on multifamily residential mortgage debt held by banks, which was virtually 0.0% between 2000 and 2006 and 0.1% in 2007, rose over 2008 and 2010. However, the extent of the increase in default rates on multifamily mortgage debt outstanding did not reach the levels recorded on 1-4 family mortgages, and by 2014 the default rate on multifamily mortgage debt returned to 0.0%.
Similarly, the serious delinquency rate, a proxy for the default rate, on multifamily mortgages held by Fannie Mae, a proxy for rates of default rates across the government sponsored enterprises, rose as well. However, as shown in Figure 2 above, although the serious delinquency rate on multifamily mortgage debt held at Fannie Mae rose, it did not match the serious delinquency rates on 1-4 family mortgages, as has since returned to a very low rate.
*Borrowers are paying down mortgage debt as well.