[EMAIL PROTECTED] wrote:
Mortgage debt-service burden for Q4 2001-Q3 2002 ties the burden recorded in
Q4 1990-Q3 1991 as the highest ever for four consecutive quarters
This just in from St Alan - don't worry about it!
<http://www.federalreserve.gov/boarddocs/speeches/2002/20021219/>
A full enumeration of the caveats surrounding the economic outlook
would, as usual, be lengthy. But often-cited concerns about the
levels of debt and debt-servicing costs of households and firms
appear a bit stretched. The combination of household mortgage and
consumer debt as a share of disposable income has moved up to a
historically high level. But the upward trend in the series
reflects, in part, financial innovations that have increased access
to credit markets for many households. These innovations include the
development of a deep secondary market for home mortgages, along
with the advent of credit scoring and automated underwriting models
that have enhanced the ability of loan officers and credit card
companies to identify good credit risks. These innovations lower the
risk level of any given amount of debt.
To be sure, the mortgage debt of homeowners relative to their income
is high by historical norms. But, as a consequence of low interest
rates, the servicing requirement for that debt relative to
homeowners' income is roughly in line with the historical average.
Moreover, owing to continued large gains in residential real estate
values, equity in homes has continued to rise despite very large
debt-financed extractions. Adding in the fixed costs associated with
other financial obligations, such as rental payments of tenants,
consumer installment credit, and auto leases, the total servicing
costs faced by households relative to their income appears somewhat
elevated compared with longer-run averages. But arguably they are
not a significant cause for concern.
Some strain from corporate debt burdens became evident as rates of
return on capital projects financed with debt fell short of
expectations over the past several years. While overall debt has not
been paid down, corporations have significantly increased holdings
of cash and have reduced their near-term debt obligations by issuing
bonds to pay down commercial paper and bank loans.