The Real Story Behind Household Debt & Housing Market: Data from Wolf Richter

There’s a lot of noise around household debt - credit card debt, auto loans, and housing debt hitting all-time highs. But let’s take a step back and look at the actual data to get the full picture. Is the sky falling? Or is there more to the story than the headlines?

Two recent articles by Wolf Richter from Wolf Street dive deep into these issues, providing clarity on the state of household debts, serious delinquencies, foreclosures, and housing debt ratios. Here’s a breakdown of the key takeaways:

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1. Household Debt and Debt-to-Income Ratios: Not as Bad as They Seem

In his article, “Household Debts, Debt-to-Income Ratio, Serious Delinquencies, Collections, Foreclosures, Bankruptcies: Our Drunken Sailors’ Debts in Q4 2024”, Wolf provides insight into the debt-to-income ratio, which is at 82%—the lowest since 2003 (excluding the stimulus era). This means that even though overall household debt has risen, incomes have increased faster, which has reduced the debt burden on consumers. In fact, disposable income increased at a faster rate than household debt, meaning consumers are in stronger financial shape than the headline debt figures might suggest.

Wolf further calculated the debt-to-income ratio using take-home pay (after-tax income). This adjustment provides a more accurate picture of the actual disposable income that households have to service their debts. By excluding taxes and other deductions, the calculation reflects the amount consumers actually have available to pay off their liabilities, making it a more precise indicator of financial health. This method accounts for real-world income and provides a clearer view of whether households are truly struggling with debt or are better positioned to manage it.

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2. Mortgages and Housing Debt: Modest Increases

In the second article, “Here Come the HELOCs”, Richter highlights the state of mortgage balances—they’ve barely budged, rising by only 0.1% in Q4 2024. This suggests that the housing market is not spiraling out of control. While HELOC balances have surged by 10% year-over-year, they remain historically low, following years of declines post-housing bust. With high mortgage rates, many homeowners are opting for HELOCs rather than cash-out refinances, avoiding locking in higher mortgage rates.

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Despite the increase in HELOCs, it’s important to note that these balances still remain relatively small in comparison to the value of homes. Home equity is at an all-time high, and homeowners are using HELOCs in a measured way to access liquidity without selling their homes or refinancing at higher rates. This is a sign that homeowners are more cautious and not recklessly borrowing against their homes.

Foreclosures remain at ultra-low levels—a clear indicator that homeowners are still in relatively stable financial positions, and even in tough times, many can sell their homes for more than they owe. According to the report, foreclosure starts were down 22% year-over-year in Q4 2024, continuing a trend of historically low levels since the 2008 financial crisis.

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3. Delinquencies and Bankruptcies: Low and Stable

Despite concerns about rising debt, delinquencies remain at historically low levels (about 2.0% of household debt), and serious delinquencies (90 days or more) are down from previous highs. The foreclosure rate is also incredibly low, at just 41,220 foreclosures, a far cry from the 90,000+ seen in the 2018-2019 "Good Times." Bankruptcies are also down, confirming that the overall debt burden on households is manageable.

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The rise in credit card debt and auto loan balances often makes headlines, but it's important to contextualize this debt. Much of the increase in these balances is driven by rising consumer prices and increased consumer spending, rather than reckless borrowing. Furthermore, consumer debt servicing costs (monthly payments on debts like credit cards and auto loans) have remained stable, suggesting that while debt balances are rising, consumers are managing them effectively.

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The Bottom Line: The Sky Isn’t Falling

Despite alarmist headlines about debt and rising costs, the data tells a more nuanced story. Household debt is growing, but income is growing faster, keeping the debt-to-income ratio in check. Delinquencies, foreclosures, and bankruptcies are still well below historical levels. Consumers have learned from past mistakes and are in better shape to handle current economic pressures.

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Key Takeaways for Mortgage and Real Estate Professionals:

1. Understand the Media’s Impact on Homebuyer Perception: The way the media reports on rising debt levels—whether it’s credit card debt, auto loans, or housing debt—significantly impacts how potential homebuyers perceive the affordability of homes and whether now is a good time to buy. Sensationalized reports on debt levels can create hesitation and fear among buyers, leading them to question whether homeownership is attainable or worth pursuing.?
2. Counterbalance the Hysteria with Data and Education: As mortgage and real estate professionals, it’s crucial to counterbalance misleading narratives with accurate, data-driven insights. By educating buyers on the real state of household debt, we can help them understand that while debt levels have risen, they’re manageable and well within historic norms. It’s our responsibility to provide context that explains the true dynamics behind rising debt and highlight the stability in the housing market, low foreclosure rates, and the strong financial position of many households.
3. Reaffirm the Value of Homeownership: While the headlines may emphasize growing debt, we must remind potential homebuyers why now is a great time to buy. The American Dream of homeownership continues to be one of the greatest paths to wealth creation. Homeownership remains the single greatest asset for building long-term wealth, and the stability it offers—compared to renting—is more important than ever. The data consistently supports the fact that homeownership is an investment in personal and financial stability, and the opportunity to build equity over time.
4. Stay Steadfast in Your Belief: As professionals who believe in the power of homeownership to change lives, it’s important to remain steadfast in promoting the benefits of owning a home. While the media may focus on short-term challenges and sensational stories about debt, homeownership offers long-term security, the potential for wealth creation, and an unparalleled sense of community.

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Final Thoughts

Mortgage and real estate professionals are on the frontlines of helping homebuyers navigate today’s housing market. While the headlines often create unnecessary panic, we have the tools and data to remind buyers that homeownership is still one of the best investments they can make. By educating and empowering potential buyers with real facts, we can help them make informed decisions and seize the opportunity that today’s market offers.

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For a more detailed analysis, check out the full articles:

1. Here Come the HELOCs: Mortgages, Housing-Debt-to-Income-Ratio, Serious Delinquencies & Foreclosures in Q4 2024
2. Household Debts, Debt-to-Income Ratio, Serious Delinquencies, Collections, Foreclosures, Bankruptcies: Our Drunken Sailors’ Debts in Q4 2024:

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