Rising Private Debt Holds Back Housing Market

The U.S. housing market is being held back by rising private debt crisis.

As of September 2014, American consumers owe $11.71 trillion in private debt, up 0.7 percent from the second quarter of 2014, an increase of $78 billion, according to the Federal Reserve Bank in New York.

Broke, USA: Private Debt Grows
Mortgages, the largest component of private debt, increased 0.4 percent to $8.13 trillion, rising  by $35 billion from their level in the second quarter. Student loan debt was the second-highest debt, reaching $1.13 trillion, up by $8 billion. Auto loans were third at $934 billion, followed by credit card debt at $680 billion, and outstanding home equity lines of credit, or HELOCs, at $512 billion.

Additionally, a staggering 8.1 million households — representing 15 percent of all mortgaged homes — are  seriously underwater, according to RealtyTrac. This persistent and severe negative equity continues to threaten the housing market. Households deeply underwater are more vulnerable to foreclosure.

Richard Vague, author of the  newly published book “The Next Economic Disaster,” (University of Pennsylvania Press, 2014), argues that the Great Depression of the 1930s, the economic collapse of the last decade, and many other sharp downturns around the world were preceded by a spike in privately held debt.

“Our investigation has led us to conclude that the level of private debt alone is not the predictive of a crisis  — it takes rapid private debt growth as well,” writes Vague. “The more debt businesses and consumers have, the more vulnerable they are to economic  distress because of the interest on that debt and their repayment obligations. And the more debt they have, the less capacity they have to borrow additional funds to sustain themselves through adverse circumstances.”

To learn more about the growing challenges to the housing market, including the challenge of private debt, subscribe to the Housing News Report. The November 2014 issue features an article — titled “Housing Landmines: Underwater Mortgages and Non-Performing Loans” — chronicling this important issue.

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To search and research real estate data for more than 130 million properties nationwide, sign up for a FREE trial to RealtyTrac.

For the latest real estate news and trends get a FREE issue of our award-winning real estate newsletter, the Housing News Report.

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