U.S. Household Wealth Rises Largely Among High-Credit-Score Borrowers -- Update
By Sarah Chaney
U.S. housing wealth is becoming increasingly concentrated among older households with high credit scores, according to a new report by the Federal Reserve Bank of New York.
Though home equity and home prices have recovered in the past year after a long decline starting in 2006, the makeup of wealth ownership has changed.
Homeownership among younger borrowers and Americans with lower credit scores has been on the decline, as tight lending standards have made it difficult for them to tap credit. Household wealth has thus moved away from this group.
"An increased amount of available home equity should make the household balance sheet more resilient in the event of a financial shock, though that may not be an option for lower-credit-score borrowers," said Andrew Haughwout, senior vice president at the New York Fed.
In 2017, 28% of borrowers who extracted equity to tap into the value of their home were over 60, up from 13% in 2006. Only 25% of borrowers who extracted equity in 2017 were under 45, down from 41% in 2006.
Besides moving, homeowners can extract equity by using cash-out refinances in which they refinance a mortgage loan into a new, larger mortgage loan.
The findings come alongside the New York Fed's household debt report, which shows American households carried $13.21 trillion in debt in the first quarter, up 0.5% from the fourth quarter.
While household debt has been rising for five years, it is growing at a slower rate than in other cycles, as mortgage debt -- which accounts for the bulk of household debt -- has been increasing at a slower clip.
Americans are mostly keeping up with their debt payments. The share of debt considered to be seriously delinquent, meaning payment is at least 90 days late, dropped to 3.11% in the first quarter from 3.12% in the fourth quarter, and 3.37% in the first quarter of 2017, the New York Fed said.
The delinquency rate of mortgages continued to improve. Delinquency on credit cards rose slightly, with 8% of balances 90 or more days delinquent as of March 31. Delinquency on auto loans edged higher in the first quarter.
The New York Fed's quarterly report on household debt and credit is based on data from the credit-ratings firm Equifax.
Write to Sarah Chaney at [email protected]