by Calculated Risk on 7/31/2006 02:59:00 PM

As a supplement to the GDP report, the Bureau of Economic Analysis provides an estimate of aggregate mortgage interest and the effective rate of interest on mortgage debt outstanding. It should come as no surprise that the effective interest rate is increasing.


Click on graph for larger image.

After twenty years of declining rates, the effective rate has risen modestly since early 2004. In Q2 2006, the effective rate was 6.373%, up slightly from 6.315% in Q1.

What is surprising is the estimated large increase in mortgage debt in Q2 2006. The actual number will be reported in the FED's Flow of Funds report, due on September 19th, but it appears total mortgage debt increased about $250 to $300 Billion in Q2, or at about the same rate as in 2005.

NOTE: I use the FED's Flow of Funds report to calculate MEW. I'll post an estimated MEW for Q2 in September.

With the slow down in Personal Consumption Expenditures in Q2, it was probably reasonable to expect MEW to fall in Q2 too. This report suggests that MEW was still strong in the second quarter.

It is also no surprise that mortgage interest, as a percent of Disposable Personal Income (DPI), has risen sharply in recent years.

This calculation is similar to the FED's Financial Obligations Ratio (FOR) except this is only for the mortgage interest payment. The current ratio is at an all time high, breaking the record set during the previous housing boom in the late '80s. The ratio will probably continue to go higher since rates are increasing and there are a substantial number of ARMs that will adjust over the next couple of years.