Mortgage balances rose by $257 billion in the third quarter to reach $13.37 trillion, following a decline in the previous quarter, according to the Household Debt and Credit Report from the New York Fed.
Wolf Street reported that the previous quarter’s drop stemmed from a temporary gap in reporting mortgages during a servicing transfer. That missing data rolled into third-quarter figures, creating an artificial jump alongside organic growth. Year-over-year, mortgage balances climbed by $302 billion, or 2.3 percent.
The report shows that Home Equity Lines of Credit surged by 4.9 percent in the third quarter alone.
Actual balances drawn on HELOCs reached $481 billion, marking a 14 percent increase from the same period last year. Since hitting a low point in 2021, HELOC balances have spiked by 52 percent. These second-lien loans increase total household debt. If a borrower defaults, it can trigger a foreclosure and loss of the property even if the primary mortgage remains fully current.
To evaluate the broader economic risk, analysts combine all mortgages and HELOCs into total housing debt and measure it against disposable income data from the Bureau of Economic Analysis. This metric excludes capital gains where high earners accumulate wealth, focusing instead on after-tax wages, business income, and government transfer payments. Disposable income has historically outpaced housing debt growth.
The economy-wide debt-to-income ratio rose to 57.2 percent in the third quarter after dipping in the second quarter.
This current debt burden stands far below the historical peaks recorded during prior market downturns. In comparison, the housing debt-to-income ratio exceeded 90 percent in 2007 at the onset of the Mortgage Crisis. While individual defaults occur due to localized hardships or unemployment spikes, broad economic contagion requires excessive system-wide debt.
Delinquency metrics remain subdued despite localized price drops in specific real estate sectors. The 90-plus day delinquency rate edged up to 1.13 percent for mortgages while dipping slightly to 0.85 percent for HELOCs. New foreclosures rose to 61,900 in the third quarter, remaining near the lowest levels recorded in the three years preceding the pandemic.
Federal forbearance programs previously drove delinquency rates near zero by removing delinquent statuses from credit reports. Current delinquency rates match figures seen across 2018 and 2019, sitting below rates recorded in 2017 and earlier years. Falling condo sales and rising inventory in certain urban markets could pressure investors unable to cover mortgage and HOA fee obligations, though such defaults have not yet reached levels that register visibly in aggregate data.
Federal guarantees insulate the broader banking system from potential residential real estate distress. Government programs through Fannie Mae, Freddie Mac, Ginnie Mae, the Federal Housing Administration, and the Department of Veterans Affairs guarantee roughly 65 percent of all outstanding mortgages, including nearly all subprime loans.
Private-label mortgage-backed securities held by global bond and pension funds account for another 15 percent of mortgages.
Commercial banks and credit unions hold less than 20 percent of total housing debt. This structural shift following the previous financial crisis means any localized mortgage downturn would create minimal systemic risk for depository institutions.
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