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The De-leveraged Consumer

As US consumers have paid off revolving credit card balances and been freed from large amounts of housing debt through foreclosures and short-sales, the average US household balance sheet has been deleveraged.  The Federal Reserve releases information on Financial Obligation Ratios (FOR).  For homeowners this includes payments on mortgage debt, taxes, insurance, auto leases/payments, and credit card payments as a percentage of disposable income:

The good news is that for both renters and homeowners, the financial obligation ratio has declined quite a bit from its peak.  The even better news is that homeowners are back to early 90’s, early 80’s type levels.  The bad news is that the spread between renter obligations and homeowner obligations is increasing.  Rents are increasing while mortgage rates are declining.  In fact, the cost of mortgage compared to the cost of rent has created the largest gap since the early 1970’s:

Buy a house if you can get a loan from a bank.


Posted in Economics, Markets.

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