Mortgage Debt

The "New York Times" ran an interesting article on Tuesday. Chairman of the Federal Reserve Board Alan Greenspan recently defended the big increase in homeowner debt over the past five years. Greenspan acknowledged that consumer debt has risen sharply in the last five years but feels that family finances are still in reasonably good shape. Mortgage debt and housing prices have both soared since 2001. Some economists worry that rising interest rates will increase monthly payments for homeowners with adjustable first mortgages or equity lines. This could spell trouble if housing prices fall. Critics feel that the Feds contributed to an artificially high housing market by keeping interest rates at record low levels. Greenspan disputes this thinking. He feels the fears are exaggerated since people do not buy and sell homes as easily as stocks. In other words, housing doesn't lend itself to being a bubble since it is harder to buy and sell. Greenspan also notes that while mortgage rates increase so have housing prices. At this time there is not a decline in housing prices. On the other hand "according to Federal Reserve data, homeowner's equity was equal to 66% of the value of their real estate during the 1970's. That share declined to an average of 56.8% in the 1990's and is now 55%".