Housing Horror

The most recent Federal Reserve's Flow of Funds Accounts reads like a horror story. Some of the most recent statistical trends are so perverse that they stretch credibility. Take these recent developments

In 1999, total outstanding household debt was $6.4 trillion. As of the end of the second quarter of 2006 total outstanding household debt was $12.3 trillion.

In 1999, household mortgage debt stood at $4.4 trillion. At the summer of 2006 it had more than doubled to $9.33 trillion.

In 1999, consumer credit outstanding was measured at $1.6 trillion. Today, this stands at approximately $2.4 trillion dollars, signaling a 50% increase in less than seven years.

Household assets held as real estate increased by $9 trillion from 2000-2006. Yet household net worth increased by $1.2 trillion.

Owner's equity as a percentage of household real estate declined from 58 percent to 54 percent despite soaring prices.

The Fed isn’t the only institution reporting frightening statistics. Freddie Mac reports that 90 percent of its refinanced loans resulted in new balances at least 5 percent higher than the previous loan.. The median age of a refinanced loan was 3.4 years. Refinancing continues despite falling house prices and rising rates. In the third quarter of 2006, the median ratio of new-to-old interest rates was 1.12.

This means that half of those borrowers who paid off their original loan and took out a new one increased their mortgage coupon rate by 12%, or roughly three-eighths of a percentage point at today's level of fixed mortgage rates. This is the highest ratio since Freddie Mac began compiling this information in 1985.

It can only end badly.