Smart Charts in Focus

Charting U.S. Housing Debt: Credit Quality Is on the Rise

Improving credit quality for U.S. housing debt could make mortgage-backed assets an attractive option.

The credit quality of U.S. housing debt is improving: As the chart shows, the number of homeowners who owe more on their mortgages than their homes are worth has fallen to near pre-crisis levels, while the average loan-to-value (LTV) ratio for U.S. mortgages has dropped to roughly 61% from a post-crisis peak of about 86%.

Despite this recent strength, we don’t believe the market is peaking and we remain constructive on U.S. housing, with a baseline forecast that home prices will increase 3% per year over the next two years.

An upward trajectory in the housing markets generally improves the credit quality of non-agency mortgage-backed securities (MBS), and we believe the Fed’s balance sheet unwind isn’t likely to rattle the MBS market. Given the likely diversification benefits of MBS relative to both U.S. Treasuries and corporate credit, investors who wish to increase exposure might consider adding a mortgage-focused strategy to existing bond allocations.
The Author

Daniel H. Hyman

Co-head, Agency MBS Portfolio Management

View Profile

For more charts critical to understanding markets, economics and policy, visit our Smart Charts digital library.

Related Content

Hear from Our Experts

Reset All

Smart Charts

Access our library of economic and market charts that you can download, save and share.


Mortgage- and asset-backed securities may be sensitive to changes in interest rates, subject to early repayment risk, and while generally supported by a government, government-agency or private guarantor, there is no assurance that the guarantor will meet its obligations. Investing in the bond market is subject to risks, including market, interest rate, issuer, credit, inflation risk, and liquidity risk. The value of most bonds and bond strategies are impacted by changes in interest rates. Bonds and bond strategies with longer durations tend to be more sensitive and volatile than those with shorter durations; bond prices generally fall as interest rates rise, and the current low interest rate environment increases this risk. Current reductions in bond counterparty capacity may contribute to decreased market liquidity and increased price volatility. Bond investments may be worth more or less than the original cost when redeemed. The value of real estate and portfolios that invest in real estate may fluctuate due to: losses from casualty or condemnation, changes in local and general economic conditions, supply and demand, interest rates, property tax rates, regulatory limitations on rents, zoning laws, and operating expenses. All investments contain risk and may lose value. There is no guarantee that these investment strategies will work under all market conditions or are suitable for all investors and each investor should evaluate their ability to invest long-term, especially during periods of downturn in the market. Investors should consult their investment professional prior to making an investment decision.

This material contains the opinions of the manager and such opinions are subject to change without notice. This material has been distributed for informational purposes only. Forecasts, estimates and certain information contained herein are based upon proprietary research and should not be considered as investment advice or a recommendation of any particular security, strategy or investment product. Information contained herein has been obtained from sources believed to be reliable, but not guaranteed. No part of this material may be reproduced in any form, or referred to in any other publication, without express written permission. PIMCO is a trademark of Allianz Asset Management of America L.P. in the United States and throughout the world. ©2017, PIMCO.