Trends in the post-crisis mortgage market usually get framed in negative terms.
One common narrative involves how difficult it is to qualify for a home loan. A related storyline focuses on the crushing student debt burdens that are preventing many young adults from buying houses.
These developments are indeed concerning, but a new report from the Federal Reserve Bank of New York suggests that they do not tell the whole story.
The report looks at the recent experience of Americans who already have mortgages, rather than consumers on the outside looking in, and finds some strikingly positive results.
Perhaps most notably, Americans paid 8% less on their mortgages last year than they did in 2008, yet the amount of principal they paid off jumped by 41%. In other words, homeowners spent less each month on their mortgage payments, but still enjoyed a substantial rise in their home equity.
"That's a major increase in savings, and a major improvement in the balance sheets for these households," Andrew Haughwout, a senior vice president at the New York Fed, said during a press briefing Friday.
Last year, U.S. homeowners paid down $288 billion in mortgage principal, which was $118 billion more than they extinguished in 2006, even though the total amount of mortgage debt outstanding was the same in both years, according to the report.
Several factors — some of them obvious, others less so — help explain the findings.
First, low borrowing costs have allowed many home owners to refinance into less expensive loans. The effective interest rate on outstanding mortgages fell from around 5.5% in 2008 to just below 4% last year.
Second, borrowers are taking far less equity out of their houses than they did a decade ago, either through a cash-out refinance or a second loan. The New York Fed report does not examine whether that trend is primarily due to greater caution among consumers, or because lending standards have tightened.
Third, the mortgage debt outstanding today is older than it was last decade, on average, despite a post-recession boom in refinancing. Why does this fact matter? Because as a loan ages, a greater share of the borrower's monthly payment goes toward paying down principal, and a smaller share goes toward interest costs.
The big boost in home-related savings is also partially the product of some more worrisome factors.
For example, tight mortgage standards in recent years have prevented many households from making their first home purchase. As a result, borrowers who have had more time to build equity are responsible for a greater share of the nation's total mortgage debt.
In addition, the huge wave of foreclosures during and after the financial crisis resulted in a smaller pool of highly leveraged home owners. That is no consolation for those families who lost their homes.
Still, for home owners who did manage to hold onto their houses over the last decade, the New York Fed's report paints an encouraging picture.
"Between 2000 and 2006, house prices and mortgage debt both doubled," Haughwout stated. "Since 2012, house prices have risen another 34%, but mortgage debt has essentially been flat."
The report suggests that U.S. homeowners are much better positioned today to weather economic turmoil than they were on the eve of the financial crisis.
"The household sector looks much better positioned today than it was in 2008 to absorb shocks and to continue to contribute to a healthy economic expansion," New York Fed President William Dudley said during the press briefing.