New York Fed Releases Research Article on U.S. Household Leverage

NEW YORK—The Federal Reserve Bank of New York today released Tracking and Stress-Testing U.S. Household Leverage, a research article that will be published in a forthcoming issue of the Economic Policy Review, the Bank’s policy-oriented journal focused on macroeconomic, banking and financial market topics.

Housing equity is an important component of borrowers’ wealth and is critical to their ability to withstand economic shocks. In this article, the authors assess risks emanating from the housing sector by tracking the evolution of household leverage—the ratio of housing debt to housing values. They use a new data set to analyze household leverage over time and across locations in the United States. They find that leverage was low before 2006, rose rapidly through 2012, and then fell back toward pre-crisis lows by early 2017 as home prices recovered.

Using borrower-level leverage measures and updated borrower credit scores, the authors conduct “stress tests” that project leverage and defaults under various adverse house price scenarios. They find that the household sector is still vulnerable to severe house-price declines, although it has become steadily less risky in recent years.

The article is written by Andrew Haughwout, Andreas Fuster and Benedict Guttman-Kenney. Haughwout is a senior vice president and Fuster was formerly a research officer in the New York Fed’s Research and Statistics Group. Guttman-Kenney is a senior economist in the U.K. Financial Conduct Authority.