The troubling ratio of mortgage debt to housing value is going to pose a problem for millions of baby boomers, who are set to retire with almost no equity, according to Dean Baker of the Center for Economic and Policy Research in Washington, D.C.
"The quarterly Flow of Funds data from the Federal Reserve Board show that homeowners are still taking on mortgage debt at a healthy pace even as their homes have largely stopped appreciating in value. Homeowners increased their mortgage debt at a 5.4 percent annual rate in the first quarter, adding debt at an annual rate of $510 billion. This is rate of borrowing is down from the 9.3 percent growth rate in 2006, but it is considerably more rapid than the 2.0 percent rate of house appreciation reported for the first quarter.
As a result, the ratio of equity to home value continued to fall...This drop in the ratio of equity to value is especially disconcerting given the country's demographics. With much of the baby boom cohort at the edge of retirement, it would be expected that the ratio of equity to value would be near record highs.
The long-term problem is that tens of millions of baby boomers are approaching retirement with relatively little equity in their homes and almost no assets outside of their homes. Their retirement income will be almost entirely dependent on Social Security."
Read the full story: Ratio of Mortgage Debt to Housing Value Hits New Record
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