Mortgages can be the sunny place in a cloudy American economy
After many years of consistent appreciation for home prize, the average loan value (LTV) ratio in all outstanding mortgages in the US is 46.9%. That is a decrease of 70% in 2013. It is a huge cushion that will prevent many unfortunate situations if the economy delays under the policy of the new Trump administration.
In fact, 82% of the mortgage holders have at least 30% equity in their home. Even in a market where house prices are falling – which could indeed happen in 2025 – almost no existing homeowners run the risk of being under water. At the end of 2024, the FHFA reported that 0.3% of the borrowers have negative equity.
In addition to the large stock cushion, the low fixed mortgage interest that dominates the landscape is another advantage for existing homeowners. It is difficult to overestimate how low the debt payments are still for this group. At the end of 2024, 82% of the mortgages wore a rate below 6% and no less than 54% of the mortgages have a rate under 4%.
These Ultra-Lage payments have weight in a delaying economy. In many recession cycles, homeowners who lose their job are forced to sell their homes. If the house is under water and the time needed to sell is very long, these houses can be disclosed instead of being sold on the open market.
But in this cycle, the mortgage can best be the financial active that the consumer owns. If you lose your job, but you are one of the 27 million homeowners with a loan of 2% or 3%, then your mortgage payment is cheaper than any alternative. It is cheaper than renting and it is cheaper than contraction.
These consumers will – and should – fight to keep their mortgage up to date, even with regard to other obligations. This is an unprecedented dynamic in every pre-recessional period that we have ever experienced.
Monthly principal and interest payments-excluding real estate tax and insurance-are almost long-term lows as a percentage of income in the homeowner’s spectrum, including those without mortgages. This debt tax was as high as 9% during the housing bubble that erupted in the late 2000s. It is now at 5.7%.
As a result of these great financial circumstances, very few mortgage holders are in every phase of delinquency, although this tail wind starts to fade a bit. The delinquency rate crawls as more borrowers have more expensive payments and it is more likely that these payments are missed.
From the fourth quarter of 2024, only 3.6% of all borrowers were in a delinquency phase. The number of people with payment problems at an early stage of the Netherlands who have grown 30 days late to the quiet pre-Pandemic levels of 2019.
Housing is not the only area in force in the American economy at the beginning of 2025. There are other clear places, such as Corporate profits are still high. Unemployment is still low. But these conditions can change quickly, especially with the heavy new rates that are being implemented.
And although house prices can fall with rising inventory and the still destroyed copper demand, existing homeowners-with their ultra-goods-chop mortgages and very low levels of debt-utacture are the only area to protect the economy against the storm.
