Economic Policy Review
Tracking and Stress-Testing U.S. Household Leverage
Forthcoming

JEL classification: D14, E27, G21

Authors: Andreas Fuster, Benedict Guttman-Kenney, and Andrew Haughwout

Housing equity is an important component of borrowers’ wealth and a critical determinant of their vulnerability to shocks. In this article, the authors use a unique, newly created data set to analyze the evolution of household leverage—defined here as the ratio of housing debt to housing values—over time and across locations in the United States, at the micro level. They find that leverage was at a very low point just prior to the large declines in house prices that began in 2006, and rose very quickly through 2012, in spite of reductions in housing debt. As of early 2017, leverage statistics were falling back toward their pre-crisis levels, reflecting a more than 30 percent increase in home prices nationally since 2012. Using borrower-level leverage measures and another unique feature of the data—updated borrower credit scores—the authors conduct “stress tests” in which they project leverage and defaults under various adverse house price scenarios. They find that while the riskiness of the household sector has declined significantly since 2012, when home prices were at their low, the sector remains vulnerable to very severe declines in house prices.

Available only in PDF
Data — Updated charts based on data through 2017:Q3
Press Release
AUTHOR DISCLOSURE STATEMENT(S)
Andreas Fuster
The author declares that he has no relevant or material financial interests that relate to the research described in this paper.

Benedict Guttman-Kenney
The author declares that he has no relevant or material financial interests that relate to the research described in this paper.

Andrew Haughwout
The author declares that he has no relevant or material financial interests that relate to the research described in this paper.