Flow of Funds: Mortgages Show Outsized Increase


The latest results from the Federal Reserve’s Z.1 Financial Accounts of the United States, i.e., the “Flow of Funds”, show that the aggregate value of all home mortgages of households and nonprofit organizations in the United States in the third quarter of 2021 registered the largest post-Great Recession numerical quarterly increase. From $11.3 trillion in the second quarter of 2021, household liabilities rose by $230 billion to $11.5 trillion. Both the current quarter and the previous quarter’s numerical increases in the aggregate value of home mortgages were outsized compared to all previous quarters since June 2009.

Despite the gain for mortgages, equity is rising faster. On the assets side of the balance sheet, the aggregate market value of all owner-occupied real estate increased to $36.8 trillion from $35.5 trillion the previous quarter.

The continuing spike in the market value of owner-occupied real estate is due to the dramatic, but unsustainable, increase in home orices occurring across the nation.  Mortgage debt is rising on the growing volume of home sales, particularly among younger households.

It is worth noting that the Flow of Funds data are not seasonally adjusted. Also, as in prior releases, the current Z.1 report included revisions to earlier quarters’ estimates. In the current quarter, there were upward revisions to a few recent, prior quarter real estate aggregate market values, while the liabilities showed relatively small revisions.

Finally, aggregate owners’ equity, that is, the difference between the market value of all owner-occupied real estate and the aggregate value of home mortgages increased in the latest quarter to $25.3 trillion, or 69% of all household real estate, the highest share since 1989.

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1 reply

  1. The rapid growth in mortgage debt reminds me of the first few years of the new century when values were driven to unsupported levels, followed by the mortgage meltdown of 2007-2008. While many blamed the subprime mortgage market, I believe that the rise in interest rates were actually to blame. If you look you will find that home values travel in the opposite direction of interest rates. I believe consumers use prices as a guide while shopping but buy based on the initial investment and monthly housing expense. Accordingly, if interest rates rise sharply, home values will fall. When home values fall, equity erodes and owners find themselves,as tens of thousands did, underwater. There are several life events, such as divorce and employment relocations, that give owners no choice but to dispose of their homes. Those who recall the period 2007 to 2010 know the financial disaster that causes. Unfortunately, I see that the FED will have no choice but to push interest rates upward to try to slow inflation and higher rates will begin to erode equity. I believe we could be looking at yet another mortgage meltdown and, with the national debt almost triple what it was when the bailouts began, the government will be hard pressed to deal with it.

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