Regional homeowners have low debt burden

Northern Colorado homeowners, on average, are holding less mortgage debt than might be expected.

“It’s actually a lot less than I would have thought,´ said Bud Noffsinger, First Western Trust Bank president. “Aggregate household debt is really low.”

According to the data, compiled by Experian Applied Geographic Solutions in February 2005 and purchased by First Western, total mortgage debt in Larimer and Weld counties is $11.25 billion. The Experian report showed 184,183 total households with 129,542 of those households carrying mortgage debt. Average mortgage debt per household is roughly $87,000.

Experian also reported total debt including credit card, installment loan, real estate and home equity debt of $13.27 billion. Broken out, home equity lines of credit for Northern Colorado households totals $711.5 million. Home equity in Northern Colorado, meanwhile, is $38.73 billion.

In the aggregate, Northern Colorado homeowners appear to be in a strong equity position, Noffsinger noted. “People really only owe $11 billion and they have $49 billion of total assets.”

The seeming disparity between this locally strong equity position and apparently low average mortgage debt and national concerns that Americans are over-leveraged is likely due to the region’s strong real estate market and a number of long-time homeowners in the mix.

“The real estate markets booming the last 15 years has given an awful lot of people a lot of kind-of-free equity in residential real estate,” Noffsinger said.

Meanwhile, longtime homeowners may hold relatively small mortgages on their properties. “There isn’t a lot of aggregate real estate debt when you look at the real picture because an awful lot of people owe small amounts on houses that are worth quite a bit right now.”

The equity built up in the residential real estate market serves to hold off risk somewhat, Noffsinger said. “If, nationwide, we start seeing a lot of foreclosures because of a higher interest rate environment, I think that Fort Collins would not be hit as hard.”

Just back from a dinner sponsored by the Federal Reserve in early May, economist John Green noted that speakers there expressed concern about the heavy mortgage debt loads that consumer households have taken on.

Consumers have learned, Green said, that their housing is a much better investment than the stock market right now. “In other words, return on investment in housing is greater than return on investment in the stock market.”

As a result, people have pulled their money out of the stock market and invested in ever bigger and better housing or remodeled. “The bottom line is they’ve put a lot, and I mean a lot, of their net worth into their houses,” Green said.

He also pointed to recent comments by Alan Greenspan in which the Federal Reserve chairman expressed concern about this trend.

“He’s concerned that people are putting all their net worth into their housing,” Green said. “They keep pulling out the appreciation, refinancing at low rates and spending that money. At some point in time he’s concerned the housing bubble is going to burst like it did in 1981. The country went into recession and housing values tanked.”

The danger comes when borrowers get “upside down,” Green explained. That is when the value of the house is less than the amount owed on the mortgage.

Economists say that it is the consumers whose mortgage payments represent huge percentages of their incomes who need to be concerned.

Looking at average mortgage debt in a region can easily be misleading, pointed out Bob Squire, branch manager of Wells Fargo Home Mortgage in Greeley. That average contains the homeowners, for example, who bought in 1991 and have had the same mortgage for that entire period.

“At the other end of the spectrum you’ve got people who have just bought a new $300,000 house and they owe $300,000 because they have an 80 percent first and a 20 percent second,” he added.

Squire said his industry continues to recommend that people keep their mortgage expense to 29 percent or less of their gross incomes. In general, he said, northern Colorado consumers tend to stick to that norm.

Consumers in the northern Front Range region tend generally to be in good shape when it comes to mortgage debt, he said. “I think one of the reasons northern Colorado is in pretty good shape is we’ve had some ups and downs in our economy that the rest of the country didn’t see but are seeing now.”

Financial planner Kathy Cosgrove Green of Green Grove Financial said she likes to recommend people not spend more than 25 percent of their net income on mortgage payments.

“That’s conservative,” she noted, but with reason. “People get stuck not having enough set aside for things that happen with their houses and then, of course, if they’re moving into a new house, there’s a lot of money to be spent for furnishings, equipment, landscaping.”

Green said the tendency among consumers to spend the equity they accumulate in their homes happens in part because consumer loan interest is no longer tax deductible. You used to be able to have a car loan and that was deductible interest. Now you can’t.”

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