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"Debtless" Housing Boom Leads Household Wealth Recovery

William Emmons, Ana Hernández Kent and Lowell Ricketts Federal Reserve Bank of St. Louis

Date Posted:: February 22, 2019
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According to @stlouisfed, no significant relationship exists btw mortgage borrowing growth and changes in housing stock value from 2006-18.

Recent data from 2006-18 reveals no significant relationship between mortgage borrowing growth and changes in housing stock value, challenging traditional views that link the two. During this period, the correlation coefficient between annual changes in aggregate home-mortgage debt and housing values was a small negative (-0.14), indicating a lack of consistent directional causation. Notably, while mortgage debt surged in 2007-08, housing values plummeted, and conversely, as mortgage debt decreased in 2012-14, housing values rose. This divergence suggests that factors other than mortgage borrowing may drive housing value changes. Despite a 150% increase in housing wealth since 2009, household mortgage debt has decreased by $312bn, highlighting a "debtless" recovery in household wealth. This disconnect underscores the need for a deeper understanding of the dynamics between mortgage borrowing and housing market trends.

"...A commonly held view of the housing bubble is that excessive mortgage growth fueled the price surge. However, other economists believe the opposite: The bubble sentiment created the rising home values (used as collateral) necessary to support rapidly rising mortgage borrowing. Annual data from the recession (and aftermath) period 2006-18 support neither view. In fact, since 2006, there has been essentially no relationship between the growth rate of mortgage borrowing and the change in value of the housing stock. This period, together with the unresolved nature of the earlier dispute, suggests we still do not have a clear understanding of the relationship between mortgage borrowing and housing values...."

Excessive mortgage borrowing inflated the housing bubble (in the form of rising house prices)
The housing bubble enabled households to borrow profligately.2
Some believe an increase in mortgage credit availability allows homebuyers to bid up house prices. This is the credit supply view, most prominently espoused by Atif Mian and Amir Sufi in a 2014 book, House of Debt, and other writings.
Others believe rising house prices support greater household borrowing. This is the irrational exuberance view, proposed by economist Robert Shiller in his book of the same name.

Most notably, mortgage debt increased significantly in 2007 and 2008, but the aggregate value of the housing stock declined sharply in those years. Conversely, mortgage debt decreased in 2012, 2013 and 2014 but housing values rose briskly.

As indicated by the correlation coefficient being close to zero for this period, there may be little to no relationship at all. Thus, changes in mortgage borrowing are not necessarily—or are not always—tied to house price changes in the same direction.

A Debtless House Price Boom

A commonly held view of the housing bubble is that excessive mortgage growth fueled the price surge. However, other economists believe the opposite: The bubble sentiment created the rising home values (used as collateral) necessary to support rapidly rising mortgage borrowing.

Annual data from the recession (and aftermath) period 2006-18 support neither view. In fact, since 2006, there has been essentially no relationship between the growth rate of mortgage borrowing and the change in value of the housing stock. This period, together with the unresolved nature of the earlier dispute, suggests we still do not have a clear understanding of the relationship between mortgage borrowing and housing values.

Notes and References

1All data presented is provided by the Federal Reserve Board in the Financial Accounts of the United States. Housing wealth is homeowners’ equity in household real estate, which is calculated as the total value of housing assets minus home-mortgage debt. Aggregate homeowners’ equity was $6.1 trillion at the end of the first quarter of 2009 and $15.4 trillion at the end of the third quarter of 2018.

2 For a review of recent economic research that explores the connection from several different perspectives, see section 1 of Emmons, William R.; and Ricketts, Lowell. “Household Debt at the Tipping Point: When and Why Does Household Borrowing Hurt the Economy?” Working Paper, June 22, 2017.

3 The correlation is between the annual percent changes of aggregate home-mortgage debt outstanding and the annual percent changes of the aggregate value of households’ real estate.

A variety of empirical methods have been employed to provide evidence for and against these hypotheses with no clear resolution emerging.

Theories about House Prices and Debt Collapsed with the Bubble

As noted above, recent evidence suggests there may be no connection between changes in mortgage debt and housing values, at least in some time periods. The correlation between annual aggregate mortgage growth and aggregate housing-value changes was small and negative (correlation coefficient of -0.14) between 2007 and 2018, as seen in the figure below. This is not consistent with either causal interpretation.

Economists have looked for evidence that causation may run in one direction or the other:

Less frequently discussed is the possibility that neither hypothesis is valid—namely, that the underlying assumption is incorrect, and house prices and mortgage growth may be unrelated to each other. Yet, that has been the case for the last decade or so as we show below.

Mortgage Borrowing and House Prices before 2007

The simple correlation between the annual growth rates of aggregate home-mortgage debt and the value of the aggregate housing stock was moderately strong and positive (0.65) starting in 1953 and ending in 2006, as seen in the figure below.3 This suggests a close association between mortgage borrowing and house price changes. The existence of a strong correlation does not provide any insight into whether one causes the other, however.

William Emmons, Ana Hernández Kent and Lowell Ricketts,"Debtless" Housing Boom Leads Household Wealth Recovery," Federal Reserve Bank of St. Louis, February 18, 2019, https://www.stlouisfed.org/on-the-economy/2019/february/debtless-housing-boom-leads-household-wealth-recovery

"Debtless" Housing Boom Leads Household Wealth Recovery

Aggregate housing wealth has increased more than 150 percent since its recent low point in the first quarter of 2009.1 Meanwhile, all other wealth of households and nonprofit organizations has increased just over 80 percent. Both housing wealth (i.e., homeowners’ equity) and total household net worth reached post-recession highs at the end of the third quarter of 2018.

Even though housing wealth has more than doubled since 2009, the value of home mortgages owed by households has actually decreased by $312 billion (about 3 percent). The recent divergence between trends in housing wealth and housing debt is particularly striking because, in the aftermath of the housing bubble, economists largely have assumed there is a positive relationship between mortgage borrowing and house prices.

The debate has been whether:

3% vs. 60%

Torsten Sløk Apollo

Date Posted:: April 8, 2026
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Torsten Sløk notes the direct lending market is ~$2T or 3% of household and non-financial debt outstanding. To provide context, he shows that in 2006, on the eve of the crisis, mortgages accounted for ~60% of such debt.

The direct lending market is roughly $2 trillion, or about 3% of total debt outstanding for US households and businesses. By comparison, mortgages accounted for about 60% of total household and corporate debt at the peak of the housing bubble in 2006.

Takeaways by Macro Roundup^® AI

Direct lending represents a small but growing alternative to traditional bank financing for businesses and households.
The mortgage market’s dominance has shifted dramatically since the 2006 housing peak, reducing systemic risk concentration.
Non-bank lenders now capture meaningful market share in credit provision across the economy.

Top 10% of Earners Drive a Growing Share of US Consumer Spending

Jonnelle Marte Bloomberg

Date Posted:: September 17, 2025
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Mark Zandi finds Americans in the top 10% of the income distribution accounted for 49.2% of consumer spending in Q2, the highest level since 1989.

Consumers in the top 10% of the income distribution accounted for 49.2% of total spending in the second quarter, up from 48.5% in the first quarter, reaching the highest level in data going back to 1989, according to an analysis of Federal Reserve data by Mark Zandi, chief economist for Moody’s Analytics. In contrast, the bottom 80% of the income distribution, or consumers making less than roughly $175,000 a year, have seen their spending merely keep pace with inflation since the pandemic.

Litigation Nation, Engineering Empire

Jonathon Sine Cogitations

Date Posted:: September 2, 2025
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Is Important:: Important

Jonathon Sine argues China “is moving beyond its breakneck industrial prime, facing similar dilemmas to those America confronted in the 1960s and 70s.” The ratio of science/engineering to humanities undergraduate majors is 2:1 in both the PRC and US.

Dan Wang’s “big idea” [is] “China is an engineering state, building big at breakneck speed, in contrast to the United States’ lawyerly society, blocking everything it can, good and bad.” I re-group US college majors according to Chinese disciplines to allow for rough comparison. Surprisingly, the ratio of science/engineering to humanities/social sciences is 2:1, the same as in China (if one groups management with science/engineering, as I also do for China). As with China today, America’s breakneck building phase was decidedly winding down by the 1960s. Urbanization went from 40% in 1900 to 70% by 1960, and grew much more incrementally over the next 60 years to 85% by 2020. The country simply did not need to continue building dams, expressways, and energy production facilities at breakneck pace. It became much more a matter of maintaining and upgrading (which has not gone well, at least according to the American Society of Civil Engineers’ report card). The American [building/investment slowdown that started after the 1970s] may be more about structural economic shifts than lawyers.

How America’s AI Boom Is Squeezing The Rest Of The Economy

Economist Staff The Economist

Date Posted:: August 19, 2025
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Is Important:: Important

As AI-related investment has risen since 2023, residential and nonresidential investment have declined or flatlined. This may suggest that a relatively rate-insensitive AI buildout is crowding out more interest-sensitive forms of investment.

Something like a sixth of the 2% rise in American real GDP over the past year has come from investments in computer and communications equipment, including chips, and data centres. Add in the grid upgrades to power AI models, plus the intellectual-property value of the software itself, and one estimate puts the boom’s contribution to real GDP growth at 40%. The trouble is that the very sector powering so much of America’s economic growth is squeezing the rest of its output. Housebuilders, for instance, cannot afford to be blithe about higher borrowing costs. Data centres have also constrained the rest of the economy by keeping energy prices high. Average American electricity bills have risen by 7% so far in 2025, at least in part due to the extra strain data centres have put on the grid. Real consumption has flatlined since December. Housebuilding has slumped, as has non-AI business investment.

Is it Over?

Joseph Wang Fed Guy Blog

Date Posted:: August 18, 2025
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Following tepid reactions to the release of GTP-5, Joe Wang observes, “It is looking more like companies are spending hundreds of billions on rapidly depreciating GPUs that produce a commoditized product that most clients only modestly benefit from.”

GPT-5 users widely expressed disappointment in the capabilities of the new release, which seemed in some ways a step back. This sentiment is reflected in benchmarks that show a modest improvement in capabilities since the significant improvement in version 4 released two years ago. In addition, the benchmarks suggest a broader convergence in the capabilities of AI models. Commentary suggests this could be due to inherent limitations in the LLM technology and exhaustion of new training data. AI is fascinating technology, but it may not justify the enormous sums spent in its pursuit. It is looking more like companies are spending hundreds of billions on rapidly depreciating GPUs that produce a commoditized product that most clients only modestly benefit from. The entire macro landscape would look very different without the support of the AI boom.

US Households and Firms Are in Great Shape

Torsten Sløk Apollo

Date Posted:: March 31, 2025
Is Database:: Database

Torsten Sløk notes that US household and banking sector debt has fallen to its lowest level in decades as a % of GDP, while corporate leverage has moved sideways. “The bottom line is that the private sector in the US is in incredibly good shape.”

Household sector leverage and banking sector leverage have declined significantly since 2008. Over the same period, federal government leverage has increased significantly, and corporate leverage has moved sideways. The bottom line is that the private sector in the US is in incredibly good shape.

According to @stlouisfed, no significant relationship exists btw mortgage borrowing growth and changes in housing stock value from 2006-18.

Torsten Sløk notes the direct lending market is ~$2T or 3% of household and non-financial debt outstanding. To provide context, he shows that in 2006, on the eve of the crisis, mortgages accounted for ~60% of such debt.

Takeaways by Macro Roundup® AI

Related Articles:

Mark Zandi finds Americans in the top 10% of the income distribution accounted for 49.2% of consumer spending in Q2, the highest level since 1989.

Related Articles:

Jonathon Sine argues China “is moving beyond its breakneck industrial prime, facing similar dilemmas to those America confronted in the 1960s and 70s.” The ratio of science/engineering to humanities undergraduate majors is 2:1 in both the PRC and US.

Related Articles:

As AI-related investment has risen since 2023, residential and nonresidential investment have declined or flatlined. This may suggest that a relatively rate-insensitive AI buildout is crowding out more interest-sensitive forms of investment.

Related Articles:

Following tepid reactions to the release of GTP-5, Joe Wang observes, “It is looking more like companies are spending hundreds of billions on rapidly depreciating GPUs that produce a commoditized product that most clients only modestly benefit from.”

Related Articles:

​​Torsten Sløk notes that US household and banking sector debt has fallen to its lowest level in decades as a % of GDP, while corporate leverage has moved sideways. “The bottom line is that the private sector in the US is in incredibly good shape.”

Related Articles:

Takeaways by Macro Roundup^® AI

Torsten Sløk notes that US household and banking sector debt has fallen to its lowest level in decades as a % of GDP, while corporate leverage has moved sideways. “The bottom line is that the private sector in the US is in incredibly good shape.”