Composition of Total Mortgage Amounts Outstanding in the U.S.

In the residential real estate market, foreclosure activity continues to be a major drag though it decreased in May relative to April. Last year a record 3.1 million filings were made. RealtyTrac predicts this year a total of 4 million foreclosures. Business Week predicts the housing market will recover sometime in 2012.

The Commercial Real Estate (CRE) market is also continuing to deteriorate. As companies go bankrupt additional CRE space would flood the market. A few firms such as Circuit City, Linens ‘N Things and mall operator General Growth Properties have filed for bankruptcy. While some are predicting a big crash in the CRE market I think it is unlikely to cause a severe economic strain like the one caused by the collapse in the residential market. This is because CRE is not as large as the residential market as shown in the graph below.

Composition of Total Mortgages Outstanding in the U.S.:

click to enlarge

Source: L.217 Total Mortgages, Flow of Funds Accounts of the United States report, 1Q-2009

Residential real estate accounts for the largest amount of mortgages outstanding. From $6.2 Trillion in 2002, it has risen to $11.9T (annualized rate) in first quarter 2009. CRE accounts for 2.5T in 1Q, 2009. To put these numbers in perspective, the U.S. GDP is about $14.3 T. The residential mortgage amounts outstanding increased year-over-year till the housing boom ended in 2007. Farm forms a minor portion of the total real estate market. In 1Q, 2009 farm mortgages outstanding accounted for only $111B at an annualized rate.The total mortgage amounts owed exceeds the total GDP of the country.

Comments

[user396040:]

I saw some statistics recently on the proportion of residential mortgages directly or indirectly guaranteed by the Federal Government (Ginnie Maes, FHA loans, Fannies and Freddies) - this proportion apparently hit a historic low in 2007 or 2006 and is now increasing rapidly to revert to historic norm. As the proportion increases, losses on mortgages will have less potential to adversely impact private sector financial statements but will have more potential to increase federal government spending and therefore deficits. There has been a pronounced migration of late in the direction of FHA loans.

Jun 25 11:15 AM

[Gregman2:]

"The total mortgage amounts owed exceeds the total GDP of the country." This would be natural since no net present value discount is
factored in. It would be interesting to see a break down (pie chart) of which entities actually hold most of the paper on (and own) the commercial real estate. Also, what's the worst case scenario? A lot of empty, non-performing assets whose owners are written down to zero. Somewhere in between is an opportunity.

Jun 26 07:28 PM