During the Housing Bubble overvalued prices were driven and sustained by increasing debt and leverage.  The Affordable Mortgage Depression is the result of asset prices adjusting to changed market and financing conditions while accumulated debt remains.  

Increasing Debt

The correlation between rising mortgage debt and housing prices is unmistakable. 




Expanding Leverage

During the Housing Bubble leverage ratios appeared to remain static as increasing debt and the use of Affordable Mortgages was off-set by rapidly rising house prices.  But unsustainable appreciation obscured the reality of expanding leverage relative to "sustainable fair value".

TheAffordableMortgageDepression.com advocates the use of pre-bubble housing prices as a proxy for "fair value".  Housing valuations at year-end 1994 were unaffected by the Homeownership Bubble which began in 1995 or the Housing Price Bubble which commenced in 1997.    

Sustainable fair value is calculated by adjusting household real estate assets in 1994 ($7.8 trillion) for inflation and housing stock growth.  Annual mortgage debt is then ascribed to fair value to derive more accurate, estimated leverage ratios which ignore distorted housing prices. 

The chart below illustrates rising leverage during the Housing Bubble relative to undistorted housing values.  It also provides guidance as to where housing leverage may gravitate should prices return to inflation-adjusted, pre-bubble levels.