While property prices have fallen 30% over the last two years mortgage debt remains larlgely unchanged from peak levels. Housing Story asks if the de-leveraging is a myth? Have we really started down the path of debt reduction and “cleansing” the system? As the largest asset on the US consumer balance sheet it’s easy to make the argument that housing remains the key to any recovery. The current evidence points to continued weakness in housing prices going forward (see our outlook here). And this means we might have a far bigger burden on our hands than many are willing to admit:
“My speculation is that the fate of bubble-mortgage debt remains as our key obstacle blocking recovery (Unbelievers should rent the Godzilla movie “Eating the Lost Decades of Japan” for further enlightenment.). Total mortgage balances remain almost unchanged from the peak of the bubble –$11.68 trillion today versus $11.95 trillion at the peak (see chart below).”
I highly recommend readers take a look at the full story on Housing Story.
Mr. Roche is the Founder and Chief Investment Officer of Discipline Funds.Discipline Funds is a low fee financial advisory firm with a focus on helping people be more disciplined with their finances.
He is also the author of Pragmatic Capitalism: What Every Investor Needs to Understand About Money and Finance, Understanding the Modern Monetary System and Understanding Modern Portfolio Construction.