The
household debt service ratio (DSR) is an estimate of the ratio of debt payments to disposable personal income. Debt payments consist of the estimated required payments on outstanding mortgage and consumer debt.
The
financial obligations ratio (FOR) adds automobile lease payments, rental payments on tenant-occupied property, homeowners' insurance, and property tax payments to the debt service ratio.
Homeowner and renter FORs are calculated by applying homeowner and renter shares of payments and income derived from the Survey of Consumer Finances and Current Population Survey to the numerator and denominator of the FOR.
http://www.federalreserve.gov/releases/housedebt/Note: You cannot just subtract mortgage FOR from the total FOR above to get non-mortgage (consumer) FOR, because the total FOR is calculated from both homeowners and renters, while the mortgage FOR represents payments only as a percentage of homeowners' income.
Analysis: The latest quarter here is Q1 2009; it was last updated on June 29, so it may be awhile before we get the Q2 numbers. Firstly, the numbers seem a little low. It's hard to see how an increase in debt payments from 15% to 19% of income could cause a systemic crisis. Secondly, although home prices began their rapid upward ascent in 1997, the mortgage FOR did not start to surge until 2000-2001, perhaps signaling that is the time when home prices began to disengage real income growth. That is also the time when interest rates came down substantially. Thirdly, the peak in total FOR is almost entirely a function of mortgage FOR. Consumer FOR for households (not shown above) peaked in the third quarter of 2005, and must fall only from 6% to 5% of homeowner income to return to 1980s levels; FOR for renters peaked in 2000 and is already back to early 1980s levels as of the Q1 2009. Of course, consumers have less savings to service debt than they did before. But excluding mortgages, their debt service seems only historically high, but not cataclysmic.
