Mortgages Top List of Debt Priorities For Consumers

16 Dec Mortgages Top List of Debt Priorities For Consumers

In the wake of the national housing crisis and subsequent mortgage meltdown, experts say that consumers are putting mortgages at the top of their list when it comes to debt priorities. The negative effects of a foreclosure or short sale were widely advertised throughout the recession, so consumers are realizing now more than ever that paying their mortgages on time is critical to their future financial outlook.

According to the credit bureau TransUnion, 30-day mortgage delinquency rates have fallen far below credit card delinquencies, and they expect it to remain this way for some time. Historically, having a roof over one’s head has topped the list when it comes to a payment hierarchy, but that mentality became sharply out of whack during the economic crisis.

TransUnion’s vice president of research, Toni Guitart, said: “We did see a big change in the traditional payment hierarchy during the recession.” But as home prices continue to rise and many formerly underwater home owners are gaining equity once again, they are putting their mortgages back at the top of their debt priorities.

A recent study by TransUnion showed that there is a direct correlation between home price movement (for better or worse) and mortgage payments. During the recession, when many home owners found themselves owing more than their properties were worth, they became frustrated and shifted their attention to other types of debt like credit card and student loan payments.

Guitart went on to say: “Consumers would make payments on their credit cards more so than on their mortgages because that was associated with the big decline in housing markets. But now over the past year, the amount of consumers that are paying mortgages over credit cards has reversed to the traditional payment hierarchy.”

The gap between delinquency rates for mortgages and credit cards has narrowed considerably. Delinquency rates now sit at 1.91 percent and 1.82 percent respectively. Steve Chaouki, group vice president for TransUnion’s financial services business unit, said: “We had previously determined that, beginning in 2008, consumers had a higher propensity to go delinquent on their mortgages than on their credit cards—a reversal of traditional payment patterns.”

Chaouki attributes this to the burst of the housing bubble, but now that the real estate market has found more stable footing, home owners are shifting their way of thinking. Auto loans still top the charts as the most valued of debt payments to make, but mortgage payments and credit cards are trailing closely behind once again.